Notice of Annual General Meeting and Explanatory Memorandum

Circadian Technologies Limited ACN 006 340 567

Date: 19 November 2009 Time: 10.00 am Location: Computershare Conference Centre Yarra Falls 452 Johnston Street Abbotsford, Melbourne, Victoria

Notice of Annual General Meetin g

Notice is given that the Annual General Meeting of the shareholders of Circadian Technologies Limited ( Company ) will be held at Computershare Conference Centre, Yarra Falls, 452 Johnston Street, Abbotsford, Melbourne, Victoria on Thursday, 19 November 2009 at 10.00 am.

Ordinary Business

1. Financial statements and reports

To receive and consider:

(a) the financial report;
(b) the directors' report; and
(c) the auditor's report

of the Company for the year ended 30 June 2009.

2. Remuneration report (Resolution 1)

To consider and, if thought fit, pass the following as an ordinary resolution:

'That the remuneration report as set out in the Annual Report for the financial year ended 30 June 2009 be adopted.'

Note: the vote on this resolution is advisory only and does not bind the Company or its directors.

3. Election of Dr Errol Malta as a director (Resolution 2)

To consider and, if thought fit, pass the following as an ordinary resolution:

'That Dr Errol Malta, a director appointed since the previous general meeting and ceasing to hold office in accordance with clause 57 of the Company's constitution, being eligible, is elected as a director of the Company.'

4. Re-election of Ms Dominique Fisher as a director (Resolution 3)

To consider and, if thought fit, pass the following as an ordinary resolution:

'That Ms Dominique Fisher, a director retiring by rotation in accordance with clause 58 of the Company's constitution, and being eligible, be re-elected as a director of the Company.'

5. Other business

To transact any other business which may legally be brought before the meeting.

By order of the board

14 October 2009

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Natalie Korchev Company Secretary

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Prox Notes y

A member entitled to attend and vote at the meeting has a right to appoint a proxy.
The proxy need not be a member of the Company.
A member who is entitled to cast two or more votes may appoint up to two proxies and, in the case of such an appointment, may specify the proportion or number of votes each proxy is appointed to exercise.
If a member appoints two proxies and the appointment does not specify the proportion or number of the member’s votes which each proxy may exercise, each proxy may exercise half of the votes.
The proxy form included in this Notice of Annual General Meeting must be signed by the member or the member’s attorney. Proxies given by corporations must be signed under the hand of a duly authorised officer or attorney.
To be valid, the form appointing the proxy and the power of attorney or other authority (if any) under which it is signed (or a certified copy of it) must be lodged with the Share Registry - Computershare Investor Services Pty Limited at Yarra Falls, 452 Johnston Street, Abbotsford, Victoria 3067, using the reply paid envelope supplied or by facsimile to 1800 783 447 (within Australia) or +61 3 9473-2555 (outside Australia) as soon as possible and in any event not later than 48 hours prior to the time appointed for the Annual General Meeting.
A proxy may decide whether to vote on any motion, except where the proxy is required by law or Circadian's constitution to vote, or abstain from voting, in their capacity as proxy. If a proxy is directed how to vote on an item of business, the proxy may vote on that item only in accordance with that direction. If a proxy is not directed how to vote on an item of business, the proxy may vote as he or she thinks fit.
If a shareholder appoints the chairperson of the meeting as the shareholder's proxy and does not specify how the chairperson is to vote on an item of business, the chairperson will vote, as proxy for that shareholder, in favour of the item on a poll.
Members should refer to the Explanatory Memorandum, which accompanies and forms part of this Notice of Meeting, for information regarding voting restrictions.

Voting entitlements

In accordance with regulation 7.11.37 of the Corporations Regulations 2001 (Cth) for the purposes of the meeting, persons holding shares at 7.00 pm (Melbourne time) on 17 November 2009 will be treated as shareholders. This means that if you are not the registered holder of a relevant share at that time you will not be entitled to attend and vote in respect of that share at the Annual General Meeting.

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Ex lanator Memorandum p y

1. Purpose of information

The purpose of this Explanatory Memorandum (which is included in and forms part of the Notice of Annual General Meeting dated 14 October 2009) is to provide members with an explanation of the business of the meeting and of the resolutions to be proposed and considered at the Annual General Meeting (AGM) to be held on 19 November 2009, at 10.00 am at Computershare Conference Centre, Yarra Falls, 452 Johnston Street, Abbotsford, Melbourne, Victoria, and to assist members to determine how they wish to vote on each resolution.

2. Financial statements and reports

Pursuant to the Corporations Act, the directors of a public company that is required to hold an annual general meeting must table the financial statements and reports of the Company (including the directors' report and auditor's report) for the previous year before the members at the annual general meeting.

Shareholders have been provided with all relevant information concerning the Company's financial statements, directors' report and auditor's report in the Annual Report of the Company for the year ended 30 June 2009. A copy of the Annual Report has been forwarded to each shareholder other than those shareholders who have previously notified the Company that they elect not to receive the Annual Report, whether in paper form or electronically. Any shareholder who had made this election and now wishes to receive a paper or electronic copy of the Annual Report should contact the Company's office by phone on +61 3 9826 0399 to arrange receipt. The Annual Report can also be viewed, printed and downloaded from the Company's website www.circadian.com.au. A copy of the financial statements, the directors' report and the auditor's report will also be tabled at the meeting.

Shareholders should note that the sole purpose of tabling the financial statements and the reports of the Company at the AGM is to provide the shareholders with the opportunity to be able to ask questions or discuss matters arising from the financial statements or the reports at the meeting. It is not the purpose of the meeting that the financial statements or reports be accepted, rejected or modified in any way. Further, as it is not required by the Corporations Act, no resolution to adopt, receive or consider the Company's financial statements or the reports (other than the remuneration report) will be put to the shareholders at the meeting.

Shareholders will be given a reasonable opportunity at the meeting to ask questions and make comments on the financial statements and the reports. The Company's auditor will be available to receive questions and comments from shareholders about the preparation and content of the auditor's report and conduct of the audit.

3. Remuneration report (Resolution 1)

The directors' report for the year ended 30 June 2009 contains a remuneration report, which sets out the policy for remuneration of the directors, the company secretary and senior managers.

The Corporations Act requires that a resolution be put to the vote that the remuneration report be adopted.

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The Corporations Act expressly provides that the vote is advisory only and does not bind the directors or the Company.

Shareholders attending the AGM will be given a reasonable opportunity to ask questions about, or make comments on, the remuneration report.

The full remuneration report is included in the Company's 2009 Annual Report which is available on the Company's website www.circadian.com.au.

4. Election of a director (Resolution 2)

4.1 Introduction

During the year:

(a) Dr John Stocker resigned as a director of the Company; and
(b) Dr Errol Malta was appointed to the Board to hold office until the Company's AGM.

In accordance with clause 57 of the Company's constitution, a director appointed by the board holds office until the annual general meeting and is then eligible for re-election. Errol Malta is eligible for and seeks re-election as a director of the Company.

4.2 Biography of Dr Errol Malta

Dr Errol Malta was appointed a non-executive director of Circadian on 20 August 2009 as well as member of the board’s remuneration committee. He is also the chairman of the Company’s Product Development Review Committee, which he has chaired since its inception in 2008.

Dr Malta has more than 20 years experience in drug development within the pharmaceutical/ biotechnology industry. During that period he worked with Amgen Inc for more than 10 years, eight of which were served at its global headquarters in California, USA, where he was Product Development Team Leader. In this role, he was responsible for global drug development and the commercialisation of a number of different protein molecules in the US, Europe and Japan. He was responsible for five successful new-molecule Investigational New Drug (IND) submissions to the FDA and other regulatory agencies, subsequent phase I/II programs, and a number of phase III and IV trials.

Upon his return to Australia, Errol was appointed Director of Scientific Affairs at Amgen Australia and Head of the Melbourne office. Errol has previous director positions in the Australian biotechonolgy sector with Alchemia Ltd, Avexa Ltd, NeuProtect Pty Ltd, NexPep Pty Ltd, Promics Ltd and Cortical Pty Ltd. Errol has been a consultant to over 20 biotechnology companies in early phase product development in Australia and the USA. He is a PhD graduate of the University of Melbourne and a Fellow of the Australian Institute of Company Directors, and has successfully completed the UCLA (Anderson School) Executive Program in Management.

5. Re-election of a director (Resolution 3)

5.1 Introduction

Clause 58 of the Company's constitution requires that at each AGM one-third of the directors must retire from office, or if their number is not a multiple of three, then the number nearest to, but not exceeding one-third of the directors must retire from office. The appointed director stated above and the managing director are not included in the calculations of retiring directors (i.e. five directors are included in the calculations). Therefore one director must retire by rotation. Ms Dominique Fisher and Mr Donald Clarke are the directors who have been longest in office.

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However, as only one director must retire, these directors agreed by lot that Ms Dominique Fisher will retire by rotation at the AGM and she is eligible for re-election. Accordingly she seeks reappointment as a director.

5.2 Biography of Ms Dominique Fisher

Dominique Fisher was appointed a Non-Executive Director of Circadian in September 2005. She became Chairman of the Board in the subsequent month and is a member of the Company’s audit committee. She has extensive business experience in the corporate area including the commercialisation of new technologies. Ms Fisher is Principal and Executive Director of EC Strategies Pty Ltd, which advises local and offshore companies on technology strategies and major commercial transactions. She is Chairman of Sky Technologies Pty Ltd, Managing Director of WebAlive Pty Ltd, Director of a major development company, Leakes Rd Rockbank Pty Ltd, a Mirvac joint venture and is a member of the Prostate Cancer Foundation. Her past appointments have included Insurance Australia Group Limited (IAG), NRMA, the Malthouse Theatre, Sydney Opera House, Councillor of the Australia Council of the Arts, and Chairman of its Dance Board. Ms Fisher was also a member of the ICT Advisory Board, advising the Federal Government on key issues affecting the development of the information technology and communications sector. In March 2007, Ms Fisher was appointed a Non-Executive Director of Pacific Brands Limited.

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000001 000 CIR MR SAM SAMPLE FLAT 123 123 SAMPLE STREET THE SAMPLE HILL SAMPLE ESTATE SAMPLEVILLE VIC 3030

Lodge your vote:

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By Mail:

Computershare Investor Services Pty Limited GPO Box 242 Melbourne Victoria 3001 Australia

Alternatively you can fax your form to (within Australia) 1800 783 447 (outside Australia) +61 3 9473 2555

For Intermediary Online subscribers only (custodians) www.intermediaryonline.com

For all enquiries call:

(within Australia) 1300 850 505 (outside Australia) +61 3 9415 4000

Proxy Form

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For your vote to be effective it must be received by 10:00am Tuesday 17 November 2009

How to Vote on Items of Business

Signing Instructions

All your securities will be voted in accordance with your directions.

Individual: Where the holding is in one name, the securityholder must sign.

Appointment of Proxy

Joint Holding: Where the holding is in more than one name, all of the securityholders should sign.

Voting 100% of your holding: Direct your proxy how to vote by marking one of the boxes opposite each item of business. If you do not mark a box your proxy may vote as they choose. If you mark more than one box on an item your vote will be invalid on that item.

Power of Attorney: If you have not already lodged the Power of Attorney with the registry, please attach a certified photocopy of the Power of Attorney to this form when you return it.

Companies: Where the company has a Sole Director who is also the Sole Company Secretary, this form must be signed by that person. If the company (pursuant to section 204A of the Corporations Act 2001) does not have a Company Secretary, a Sole Director can also sign alone. Otherwise this form must be signed by a Director jointly with either another Director or a Company Secretary. Please sign in the appropriate place to indicate the office held.

Voting a portion of your holding: Indicate a portion of your voting rights by inserting the percentage or number of securities you wish to vote in the For, Against or Abstain box or boxes. The sum of the votes cast must not exceed your voting entitlement or 100%.

Appointing a second proxy: You are entitled to appoint up to two proxies to attend the meeting and vote on a poll. If you appoint two proxies you must specify the percentage of votes or number of securities for each proxy, otherwise each proxy may exercise half of the votes. When appointing a second proxy write both names and the percentage of votes or number of securities for each in Step 1 overleaf.

Attending the Meeting

Bring this form to assist registration. If a representative of a corporate securityholder or proxy is to attend the meeting you will need to provide the appropriate “Certificate of Appointment of Corporate Representative” prior to admission. A form of the certificate may be obtained from Computershare or online at www.computershare.com.

A proxy need not be a securityholder of the Company.

Comments & Questions: If you have any comments or questions for the company, please write them on a separate sheet of paper and return with this form.

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Turn over to complete the form

View your securityholder information, 24 hours a day, 7 days a week:

www.investorcentre.com

Your secure access information is:

Review your securityholding

SRN/HIN: I9999999999

Update your securityholding

PLEASE NOTE: For security reasons it is important that you keep your SRN/HIN confidential.

916CR_0_Sample_Proxy/000001/000003

MR SAM SAMPLE FLAT 123 123 SAMPLE STREET THE SAMPLE HILL SAMPLE ESTATE SAMPLEVILLE VIC 3030

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I9999999999
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Change of address. If incorrect, mark this box and make the correction in the space to the left. Securityholders sponsored by a I9999999999 broker (reference number commences with ’ X ’) should advise your broker of any changes. I 9999999999 I ND

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Proxy Form

Please mark

to indicate your directions

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Appoint a Proxy to Vote on Your Behalf

XX

I/We being a member/s of Circadian Technologies Limited hereby appoint

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the Chairman of the meeting

OR

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PLEASE NOTE: Leave this box blank if you have selected the Chairman of the Meeting. Do not insert your own name(s).

or failing the individual or body corporate named, or if no individual or body corporate is named, the Chairman of the Meeting, as my/our proxy to act generally at the meeting on my/our behalf and to vote in accordance with the following directions (or if no directions have been given, as the proxy sees fit) at the Annual General Meeting of Circadian Technologies Limited to be held at Computershare Conference Centre, Yarra Falls, 452 Johnston Street, Abbotsford, Melbourne, Victoria on Thursday, 19 November 2009 at 10:00am and at any adjournment of that meeting.

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Items of Business

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PLEASE NOTE: If you mark the Abstain box for an item, you are directing your proxy not to vote on your behalf on a show of hands or a poll and your votes will not be counted in computing the required majority.

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Item	1	Adoption of the Remuneration Report
Item	2	Election of Dr Errol Malta as a Director
Item	3	Re-election of Ms Dominique Fisher as a Director

The Chairman of the Meeting intends to vote undirected proxies in favour of each item of business.

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Signature of Securityholder(s) This section must be completed.

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Individual or Securityholder 1 Securityholder 2 Securityholder 3
Sole Director and Sole Company Secretary Director Director/Company Secretary
Contact
Contact Daytime
Name Telephone Date / /
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C I R

9 9 9 9 9 9 A

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2009 annual report

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Circadian aims to deliver superior shareholder returns by being a world class biologicals drug development company producing therapeutics for cancer.

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Contentscontents

contents Contents
Operations Report	2
Management Team	10
Directors’ Report	12
Corporate Governance Statement	25
Annual Financial Report	33
Auditor’s Independence Declaration	34
Balance Sheet	35
Income Statement	36
Statement of Changes in Equity	37
Cash Flow Statement	39
Notes to the Financial Statements	40
Directors’ Declaration	81
Independent Auditor’s Report	82
ASX Additional Information	84
Corporate Information	85

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Operations Report
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Review by Robert Klupacs Managing Director & CEO

Dear Shareholders

It is a pleasure to report to you on Circadian’s progress in 2008/09, my first full year as CEO of the Company. During this period, Circadian has made significant progress in the execution of our new business strategy focused on the development of antibody based therapies for cancer. As we entered the past year, we had four key objectives to advance our business. These were:

Extend and strengthen our core intellectual property position covering VEGF-based therapeutics.
Advance our drug development pipeline toward human clinical trials.
Add to our list of important partnerships for the commercialisation of our intellectual property rights.
Further strengthen and add skill-sets to our management team.

I believe that we have had significant accomplishments in each of these areas. Despite a challenging global financial environment, I believe that the achievement of these tangible milestones have had a positive impact upon the underlying value of the Company attributable to shareholders.

I am pleased to summarise our activities here and to share with you our future objectives.

Extending and strengthening our intellectual property position

Acquiring 100% ownership of Vegenics – As you are aware, our core strategy is to exploit the vast intellectual property estate of our subsidiary company Vegenics Limited. This patent estate, comprising over 320 granted or pending patents, provides broad protection of our rights to develop new human therapeutics relating to Vascular Endothelial Growth Factors (VEGF) C, D and VEGF receptor protein 3. We believe that these are among the most promising new drug targets in the pharmaceutical industry.

To strengthen our position, a key achievement was moving to 100% ownership of Vegenics Limited by the acquisition of the 33% of that company previously owned by two of its cofounders, the Ludwig Institute for Cancer Research Ltd (LICR) and Licentia Limited in August 2008. This provided Circadian with complete ownership of Vegenics’ product pipeline and its extensive intellectual property portfolio. Under this transaction LICR and Licentia have become substantial shareholders of Circadian.

Successful prosecution of key strategic patents – In August 2008 Vegenics was granted a patent in the US covering all therapeutic and diagnostic uses for antibodies to VEGF-D and in June 2009 was granted a further patent by the European Patent Office in respect of antibodies to VEGF-D.

The expiration of the various patents covering our lead cancer therapy molecules VGX-100, VGX-200 and VGX-300 expire between 2017 and 2025 with further patent filings being made and to be made to further extend patent life pursuant to our intellectual property strategy.

circadian technologies limited

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Circadian:
Developing novel
antibody therapeutics
for cancer.
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Advancing our product pipeline

Humanisation of VEGF-D antibodies for the VGX-200 cancer program – In October 2008 we announced that Circadian’s VEGF-D antibodies (VGX-200) were successfully humanised and optimised by our service provider, Arana Therapeutics. The purpose of converting a non-human antibody into a human-like antibody is so that it may be safely administered to patients minimising the risk of rejection of the treatment. The potency of these drug candidates was also further improved. Circadian is currently conducting pre-clinical studies on the series of humanised antibodies produced for selection of a formal clinical candidate.
Advancement of the VGX-100 program – While we have not yet reported specific results, we have continued to make good progress in our VGX-100 antibody program targeting the VEGF-C protein.
Extensive studies are ongoing evaluating VGX-100 in a range of rodent cancer models which will be used to guide human clinical trials. The company is also developing appropriate manufacturing methods to produce the drug in quantities sufficient for clinical use. Toxicology and regulatory plans are in place. All of these activities are continuing to track to timelines that we have communicated publicly.
Initiation of Trinam[®] Phase 3 clinical trial – Our licensee Ark Therapeutics (LSE:AKT) is developing Trinam[®] , a genebased medicine to prevent blood vessels from blocking in kidney dialysis patients who have undergone vascular access graft surgery, thereby improving quality of care and quality of life for

these patients. Ark has reported that in a Phase 2 clinical trial the access grafts of patients given Trinam[®] remained functional for dialysis, on average, up to three times longer than in untreated controls.

Ark announced in May 2009 that it had enrolled the first patient in a pivotal Phase 3 clinical study with completion of the study expected to take around 18 months.

Rights to employ the VEGF-D gene in Trinam[®] are licensed from Circadian’s subsidiary, Vegenics, to Ark. Under the terms of the Ark license agreement, Circadian is entitled to receive milestone payments on clinical development achievements and royalties on product sales.

Milestones in the IMC-3C5 program by Circadian’s licensee, ImClone – In October 2008, Circadian announced that our licensee, ImClone Systems, had designated the human therapeutic antibody IMC-3C5 as a formal pre-clinical development candidate. IMC-3C5 is an antibody which neutralises VEGFR-3. ImClone has indicated that it plans to file an Investigational New Drug (IND) application to initiate human clinical trials for oncology indications some time in 2010.

In April 2009 scientists from ImClone presented data at the prestigious annual conference of the American Association of Cancer Research demonstrating that VEGFR-3 antibodies were effective in two models of cancer. The data showed that in an animal model of human head and neck cancer, treating mice with a combination of a VEGFR-3 antibody, plus the chemotherapy drug docetaxel gave significantly better results than treatment with docetaxel alone. In a second animal study, ImClone showed that the same antibody combined with chemotherapy drug cisplatin was more effective in treating human lung tumours than cisplatin alone.

ImClone has exclusive rights from Vegenics to develop the VEGFR-3 antibody in return for annual license fees and royalties on potential future product sales.

Adding to our list of respected partners

Licensing of Cancers of Unknown Primaries (CUP) diagnostic test to Healthscope – In February 2009 we announced that we had entered into a strategic partnership with Healthscope Limited, one of Australia’s largest healthcare providers, to commercialise a diagnostic technology for CUP. Under the terms of the agreement, Healthscope will develop, clinically validate and market the CUP test throughout Australia, New Zealand, Singapore and Malaysia (this is being funded by Healthscope). Circadian received an upfront fee, and will earn development milestones and royalties on sales of the test. Circadian retains all rights to the test throughout the remainder of the world. The technology was jointly developed through a research partnership between Circadian and the Peter MacCallum Cancer Centre.
Cancers of Unknown Primaries is generally less well known and publicised than other cancer types. However, it is actually more common than leukemia and is the fourth most common cause of

2009 annual report

Operations Report (continued)

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cancer deaths in Australia. CUP refers to a complex form of cancer in which the site of origin of a tumour cannot be identified using standard techniques. The inability to identify a primary site of cancer poses many challenges, given that the primary site of cancer usually dictates the treatment, expected outcome, and overall survival.

The Healthscope agreement adds another highly respected company to our set of prominent partners, which already includes Ark Therapeutics and ImClone Systems. Each of these companies is a leader in their respective field.

Building an outstanding management and advisory team

Circadian’s goals could not be accomplished without the expertise and dedication of its highly experienced staff. In transforming the company under its new business model, we have made the recruitment of exceptional industry professionals one of our priorities.

The Product Development Review Committee (PDRC) – A unique approach that Circadian has taken is the establishment of a Product Development Review Committee. Different from a scientific advisory board, which typically is made up of academic researchers, the PDRC, a committee of the board, is a group of very senior industry professionals with expertise in every step of the drug development process who provide advice on and scrutinise our drug development and commercialisation strategies. The members include Dr George Morstyn, former Chief Medical Officer and Head of Development at Amgen, Dr Errol Malta, also formerly with Amgen and team leader of numerous drug development programs, Dr Russell Howard, CEO of Maxygen, Carlo Montagner, previously head of the oncology franchises at Sanofi-Aventis and Bayer-Schering, Mr Ralph Smalling, former head of Amgen Regulatory Affairs and Dr Richard Morgan, former head of toxicology at GlaxoWellcome (now GlaxoSmithKline). The PDRC formally report to the board, and its members meet regularly with Circadian’s management team to ensure that the company follows the best industry practices in its product development program.
New additions to the Executive Management Team – Circadian has successfully recruited two key staff members in the past financial year.

Dr Alex Szabo, Head of Business Development, joined Circadian on 1 July 2008. Originally from the United States, Alex has held executive management roles in a number of leading biotechnology companies and has an extensive network of contacts within the global pharmaceutical industry. He has negotiated numerous partnership agreements with US, European and Japanese pharmaceutical companies. Shortly after joining Circadian, Alex successfully negotiated the Cancer of Unknown Primaries licensing agreement with Healthscope.

Also joining the management team as Head of Chemistry Manufacturing Control (CMC) is Dr Mike Gerometta who previously acted in a consulting role to the company. Mike is responsible for planning and executing the production of protein pharmaceuticals. Mike has 20 years experience leading

manufacturing activities at Australian companies. He joined Circadian from his previous role as Chief Operating Officer with Queensland-based Q-Gen.

The next 12-24 months

Having achieved these significant milestones, we now look ahead to key events for the next twelve months.

Completion of enrolment in the Phase 3 clinical trials with Trinam;
Completion of the first phase of development of CUP diagnostic test by Healthscope;
Commencement of formal GLP (Good Laboratory Practice) toxicology with VGX-100;
VGX-200 lead candidate selected and cGMP (current Good Manufacturing Practice) production commenced;
Demonstrated manufacturability of VGX-300 in commercial quantities; and
Continuing extension to our IP portfolio covering VEGF-C, VEGF-D and/or VEGFR-3 through patent grants in Europe, Japan and USA.

We are on track to commence clinical trials with VGX-100 in the first half of 2011. IND filing and clinical trial commencement by ImClone in respect of antibody therapy IMC-3C5 is expected some time in 2010.

With a continuing and enhanced focus on drug development, a strong board of directors, an outstanding management and advisory team and strong financial position, we look forward to consolidating the successes of the past year and building further exceptional value for shareholders in the future.

Robert Klupacs Managing Director & CEO 20 August 2009

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David Phelan, Research Scientist, in Circadian’s laboratory at the Ludwig Institute for Cancer Research in Melbourne

circadian technologies limited

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Snapshot of our Product Pipeline

pre-clinical discovery development clinical phase 1 clinical phase 2 clinical phase 3 indication VGX-100 Solid tumours VGX-200 series Solid tumours VGX-300 Solid tumours & eye diseases Selected tissue tumours – head VEGFR-3 Abs (ImClone - licensee) & neck cancers likely first target Trinam® (Ark - licensee) Graft patency in dialysis

Note: Programs being conducted by partners are fully funded by them.

Circadian’s deep product pipeline comprises:

Four drug development programs
including three monoclonal antibody products
targeting different mediators of the process of angiogenesis
focussing on treatments for cancer
One late stage clinical asset, Trinam[®]
Phase 3 clinical trials commenced in January 2009
A diagnostic test for Cancers of Unknown Primaries

Our Strategy

Our business is to develop new biological therapeutic products which can inhibit angiogenesis, primarily antibody based therapies for cancer. This is based on our extensive intellectual property and know-how relating to Vascular Endothelial Growth Factors (VEGF) C, D and R3.

A focus on developing antibody and protein therapeutics.

In contrast to traditional small molecule pharmaceuticals, therapeutic antibodies have been shown to have at least two major advantages. They are much more specific than traditional small molecules, enabling them to more specifically target pathways involved in disease, and secondly have been shown to have much less toxicity as a class than traditional small molecules. Over the past 10 years therapeutic antibodies, such as Avastin[®] , Herceptin[®] , Erbitux[®] and Mabthera[®] have had a major impact in the treatment of cancers. The impact of highly targeted therapies in treatment and on the pharmaceutical industry generally was highlighted in a recent report from Evaluate Pharma, a leading industry market research organisation, which predicted that by 2014, four of the best selling drugs in the world will be antibodies and three of these will be antibody based anti-cancer agents.

Our objectives are to:

Continue to drive the development of our current VGX-100, VGX-200 and VGX-300 cancer therapeutic programs.
Secure development partnerships with larger pharmaceutical and/or biotechnology companies for one or more of these therapeutic programs.
Retain development of one selected therapeutic to proof of efficacy in humans and partner thereafter.
Selectively exploit/commercialise other aspects of the portfolio, namely:
therapeutics outside the oncology area
clinical diagnostics and reagents for potential early revenues.

Particularly in the field of angiogenesis and therapeutic antibodies there is potential for partnerships at the pre-clinical stage of drug development. This is based on the demonstrated willingness of large pharmaceutical and biotech companies in the last 18 or so months to sign-up early-stage deals in this field. These factors contribute to aspects of our commercialisation strategy.

Further, our intellectual property has applications not just in cancer but also in a number of other areas such as eye disease. Accordingly there are a number of large market opportunities outside of oncology available to us to develop therapeutics either ourselves or in partnership with others.

2009 annual report

Operations Report (continued)

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Our Technology

Inhibiting angiogenesis and lymphangiogenesis – a powerful new treatment approach for cancer

VEGF Proteins

Circadian’s technology is centred on two members of the vascular endothelial growth factor (VEGF) family of proteins, VEGF-C and VEGF-D, and their activation of the VEGF receptors. These proteins promote the key biological processes of blood vessel development (VEGFR-2) and lymphatic vessel development (VEGFR-3), known as angiogenesis and lymphangiogenesis respectively.

Angiogenesis and lymphangiogenesis

The growth of tumours is known to depend on the formation of new blood vessels to carry nutrients and oxygen to the new tissue. Targeting the process of angiogenesis has been a major breakthrough in anti-cancer therapeutics – an approach that led to the commercialisation of multi-billion dollar drug Avastin[®] , a monoclonal antibody against VEGF-A. While Avastin[®] has been demonstrated to be effective in fighting cancer, clinical results indicate that its effect in inhibiting angiogenesis is only partial. Hence there is a need for auxiliary or improved anti-angiogenesis agents. In addition to regulating fluid levels in the body, the lymphatic system plays an important role in cancer progression. Lymph is filtered in the lymph nodes, trapping cancer cells that

leave the site of a primary cancer. Recent evidence suggests that new lymphatic vessels formed by certain tumours (for example, breast cancer) are a major means of spreading cancer to other sites in the body. Tumour spread is often the primary cause of cancer mortality and inhibiting lymphangiogenesis may therefore represent a powerful approach to preventing cancer spread.

About VEGF-C, VEGF-D and VEGFR-3

Closely related to VEGF-A (the target of Avastin[®] ), proteins VEGF-C and VEGF-D bind to VEGF receptors promoting both angiogenesis and lymphangiogenesis. VEGFR-3 is a receptor protein embedded in the plasma membrane of the cells that form lymphatic capillaries. Recently, work from the laboratory of the highly respected researcher Professor Kari Alitalo (University of Helsinki) has shown that VEGFR-3 plays an important role in cancer angiogenesis by guiding new blood vessels toward tumours. Studies by Circadian’s scientists and its collaborators have shown that VEGFR-3 also plays an essential role in lymphatic vessel development. These studies have led to a surge of interest in VEGF-C, VEGF-D and VEGFR-3 as potential new targets for anti-cancer therapy.

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In order to grow larger than approximately 1 mm in size, tumours secrete factors of the VEGF family to stimulate the growth and development of supporting blood vessels delivering oxygen and nutrients to the tumour. This process is known as angiogenesis. Two key factors are VEGF-C and VEGF-D, which act by binding to receptors VEGFR-2 and VEGFR-3 on existing blood vessels. VEGF-C and VEGF-D also bind to the receptor VEGFR-3 on lymphatic vessels inducing lymphangiogenesis. Enlargement of supporting lymphatic vessels may permit cancer cells to spread (metastasize) from the primary tumour to other parts of the body. Metastasis is often the direct cause of cancer mortality.

circadian technologies limited

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VEGFR-3 as an anti-cancer target

Several recent findings have further enhanced interest in VEGFR-3 as an important new drug target for cancer. These include:

Over-expression of VEGFR-3 or its activators VEGF-C and VEGF-D correlates with poor prognosis in a variety of cancer types (as documented extensively in scientific publications);
Circadian and its collaborators have shown that blocking VEGFR-3 or VEGF-C and VEGF-D inhibits tumour growth in various animal models. In addition, the VEGFR-3 pathway has certain properties that make it especially attractive as a drug target;
VEGFR-3 is expressed at the cell surface, so it is accessible to biotherapeutics such as antibodies or soluble receptor drugs; and
The signalling pathway of VEGFR-3 is well understood, which facilitates the evaluation or ruling out of potential side-effects or toxicities.

Anti-cancer compounds

Inhibitors of VEGF-C, VEGF-D and VEGFR-3 block the activity of these proteins in a similar, but alternative, way to the multi-billion dollar drug Avastin[®] . As such, inhibitors of VEGF-C and VEGF-D have the potential to block blood vessel growth in tumours that are resistant, or have developed resistance, to anti-VEGF-A therapy.

When used in combination with drugs like Avastin[®] , inhibitors of VEGF-C and VEGF-D may more effectively shut down angiogenesis. Inhibitors of VEGF-C, VEGF-D and VEGFR-3 also have the potential to limit the spread of tumours – which is often the fatal event in cancer progression – through their effect on lymphangiogenesis. Anti-VEGF-A therapeutics have not shown efficacy in blocking the spread of tumours through the lymphatic system.

Intellectual property

Circadian owns the world’s most extensive intellectual property portfolio related to VEGF-C, VEGF-D and VEGFR-3. These rights were originally licensed or assigned from a variety of parties including the Ludwig Institute for Cancer Research Ltd, the University of Helsinki and Human Genome Sciences. Circadian’s rights to develop antibody-based drugs to these proteins are protected worldwide and some as far into the future as 2025.

Other disease applications

While Circadian is focusing primarily upon cancer, VEGF technology also has applications in other diseases. Shutting down angiogenesis and/or lymphatic vessel growth is important in eye diseases including age-related macular degeneration and diabetic retinopathy. Circadian has licensed some of its intellectual property to other companies for exploration of these therapeutic opportunities.

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Circadian’s antibody-based drugs in development bind to and block the activity of VEGF-C and VEGF-D. In doing so, they are intended to inhibit blood vessel development, “starving” the tumour of oxygen and nutrients. Similarly, by blocking lymphatic vessel development, they are expected to inhibit tumour metastasis. Circadian’s drugs therefore offer the potential to block both tumour growth and tumour spread.

2009 annual report

Operations Report (continued)

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Inherent risks of investment in biotechnology companies

Some of the risks inherent in the development of a product to a marketable stage include the uncertainty of patent protection and proprietary rights, whether patent applications and issued patents will offer adequate protection to enable product development, the obtaining of the necessary drug regulatory authority approvals and difficulties caused by the rapid advancements in technology. Also a particular compound may fail the clinical development process through lack of efficacy or safety. Companies such as Circadian are dependent on the success of their research and development projects and technology investments. Investment in research and development projects and technology-related companies cannot be assessed on the same fundamentals as trading and manufacturing enterprises. Thus investment in these areas must be regarded as speculative taking into account these considerations.

in the process of discovering, developing and commercialising drugs that are safe and effective for use as human therapeutics and the financing of such activities. There is no guarantee that the Group’s research and development projects and interests (where applicable) will be successful or receive regulatory approvals or prove to be commercially successful in the future.

Actual results of further research could differ from those projected or detailed in this report. As a result, you are cautioned not to rely on forward-looking statements. Consideration should be given to these and other risks concerning the Group’s research and development program referred to in this annual report for the period ended 30 June 2009.

This annual report may contain forward-looking statements regarding the potential of the Group’s projects and interests and the development and therapeutic potential of the Group’s research and development projects. Any statement describing a goal, expectation, intention or belief of the Group is a forward-looking statement and should be considered an at-risk statement. Such statements are subject to certain risks and uncertainties, particularly those inherent

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Megan Baldwin, Head of Preclinical R & D, and Brad McColl, Scientific Project Manager

circadian technologies limited

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Angus Tester, Senior Research Scientist, in Circadian’s laboratory at the Ludwig Institute for Cancer Research in Melbourne

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Susan Foran Natalie Korchev Mike Gerometta Robert Klupacs
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Management Team
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Robert Klupacs, BSc(Hons), Grad Dip IP Law, MAIPA

Managing Director & CEO

Robert Klupacs joined Circadian in August 2005 and was appointed Managing Director in March 2008. He is an intellectual property expert and entrepreneur with an extensive history of launching and managing successful ventures in the biotechnology industry. Robert was the driving force behind the founding of Vegenics, Circadian’s major subsidiary. Prior to joining Circadian, he was founder and Chief Executive Officer of ES Cell International Pte Ltd (ESI) based in Singapore, a world leader in the development of human embryonic stem cell technology. From 1999-2001 he was Chief Operating Officer of the Monash Institute of Reproduction and Development, where he founded six start-up companies. Prior to that he was employed by Amrad Corporation Ltd (since acquired by CSL) from 1988 until 1999, where he was Director of Intellectual Property and a member of the executive team. He holds a BSc(Hons) from Monash University in Pharmacology and is a registered Australian patent attorney.

Natalie Korchev, BCom, ACA

CFO, Head of Operations and Company Secretary

Natalie Korchev has been a member of Circadian’s management team since April 2000 and has more than 18 years experience as a chartered accountant. In addition to her role with Circadian, she was also previously Company Secretary of Antisense Therapeutics, managing the company through its IPO in 2001. Prior to joining Circadian she was Senior Assurance Services Manager with an international accounting firm now part of Ernst & Young. In that role she gained extensive experience in global finance through

assignments both in Australia and Europe. Her clients included companies in the biotechnology, transportation/logistics and mobile communications industries providing audit, internal process reviews, strategic and business planning services.

Alexander Szabo, PhD, MBA

Head of Business Development

Alex Szabo, who joined the Company on 1 July 2008, has extensive experience in business development and marketing in the biotechnology industry. Prior to his appointment at Circadian, he held executive positions with leading US biotechnology companies BIAcore, Beckman-Coulter, Affymetrix and Stratagene. After migrating to Australia in 2001, he was initially Vice President of Business Development for Melbourne-based Cerylid Biosciences, where he closed a number of significant deals with major international pharmaceutical firms. From 2005 until he joined Circadian, he was Vice President of Business Development for Bionomics Ltd where he successfully led business development initiatives in the fields of cancer, epilepsy and inflammatory diseases. He is the recipient of a PhD in Biochemistry from MIT and has held research positions with Stanford University, the Pasteur Institute, and the Sloan-Kettering Cancer Center.

Megan Baldwin, PhD

Head of Preclinical R&D

Megan Baldwin joined the Circadian group in January 2008 and is responsible for research and development of Circadian’s product pipeline. Prior to joining Circadian, she was employed at Genentech, the world leader in the field of angiogenesis-based therapies for

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Richard ChadwickRichard Chadwick Megan BaldwinMegan Baldwin Alex SzaboAlexander Szabo
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cancer and other diseases. Her experience included several years as a researcher in the group of leading angiogenesis expert Napoleone Ferrara, before moving to Genentech’s commercial division and having responsibility for corporate competitive intelligence activities. In this role she developed extensive knowledge of the angiogenesis and cancer fields. Megan has a scientific background of more than ten years focused on angiogenesis and therapeutic strategies for oncology indications. She holds a PhD in Medicine from the University of Melbourne, having conducted her doctoral studies at the Ludwig Institute for Cancer Research.

Richard Chadwick, PhD

Head of Intellectual Property

Richard, who joined the Circadian group in February 2008, is qualified as both a European and Australian Patent Attorney. Richard joined Circadian from FB Rice & Co, where he had been working for 5 years in the Biotechnology Group. Prior to that, Richard had 10 years experience in intellectual property in the U.K. This included working as an in-house attorney at Dow Corning Limited and 5 years working as an in-house attorney at Unilever.

Susan Foran, M Pharm

Head of Toxicology and Project Management

Circadian's goals could not be accomplished without the expertise and dedication of its highly experienced staff.

programs. Susan has also managed her own consultancy business providing product development advice and project management services to a number of Australian biotechnology companies.

Mike Gerometta, PhD

Head of CMC Development

Mike Gerometta has been with Circadian since December 2008 and is principally responsible for the outsourcing of Vegenics' research and cGMP manufacturing activities. Mike has over 20 years experience in the Australian biotechnology industry, most recently as Chief Operating Officer of Q-Gen, QIMR’s translational research, manufacturing arm. He has also spent 19 years at Agen Biomedical, occupying a variety of positions and roles, most recently as Research and Product Development Director. In this role he was responsible for the chemistry, manufacturing and controls (CMC), pre-clinical programme and patent management for Agen’s ThromboView[®] project, a blood clot imaging agent. Previously he has worked at Biotech Australia, Sydney and together with earlier positions at Agen, developed numerous successful immunodiagnostic assays for the medical, veterinary and food industries across various diagnostic platforms for the laboratory and point-of-care. He was awarded his PhD in biotechnology from the Queensland University of Technology and has a degree in chemistry from the University of Technology in Sydney.

Susan is a qualified pharmacist with broad expertise in product development, project management and medical affairs. Her previous experience includes roles with leading multinational firms GlaxoSmithKline and Kendle Pty Ltd and small biotechnology companies. In these roles, she contributed to the development of numerous products including preclinical, clinical and post marketing

2009 annual report

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Tina McMeckan Don Clarke Dominique Fisher Carlo Montagner Robert Klupacs Jonathan Skipper
Directors' Report
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For the year ended 30 June 2009

The Directors (Board) of Circadian Technologies Limited (Circadian or Company) have pleasure in submitting their report for the year ended 30 June 2009.

The qualifications, experience and special responsibilities of the Company’s Directors are as follows:

Dominique Fisher, BA (Hons), MAICD

Directors

The names of the Company’s Directors in office during the financial year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated.

Dominique Fisher Non-Executive Chairman

Robert Klupacs Managing Director & CEO

Don Clarke Non-Executive Director

Tina McMeckan Non-Executive Director

Carlo Montagner Non-Executive Director (appointed 1 July 2008)

Jonathan Skipper Non-Executive Director (appointed 14 August 2008)

John Stocker Non-Executive Director (resigned 14 November 2008)

James MacKenzie Non-Executive Director (resigned 31 July 2008)

Dominique Fisher was appointed a Non-Executive Director of Circadian in September 2005. She became Chairman of the Board in the subsequent month and is a member of the Company’s audit committee. She has extensive business experience in the corporate area including the commercialisation of new technologies. Ms Fisher is Principal and Executive Director of EC Strategies Pty Ltd, which advises local and offshore companies on technology strategies and major commercial transactions. She is Chairman of Sky Technologies Pty Ltd, Managing Director of WebAlive Pty Ltd and Director of a major development company, Leakes Rd Rockbank Pty Ltd, a Mirvac joint venture. Ms Fisher is also a Councillor of the Australia Council of the Arts, is Chairman of its Dance Board and is a member of the Prostate Cancer Foundation. Her past appointments have included Insurance Australia Group Limited (IAG), NRMA, the Malthouse Theatre, Sydney Opera House and member of the ICT Advisory Board, advising the Federal Government on key issues affecting the development of the information technology and communications sector. In March 2007, Ms Fisher was appointed a Non-Executive Director of Pacific Brands Limited.

Robert Klupacs, BSc(Hons), Grad Dip IP Law, MAIPA

Robert Klupacs joined Circadian Technologies Limited as an executive in August 2005 and was appointed as Managing Director of the Company on 1 March 2008. He is also an Executive Director of all of the Company’s wholly owned subsidiaries and Chairman of associated company Syngene Limited. Mr Klupacs is

circadian technologies limited

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Circadian’s board
brings diverse and high
level experience in
technology, finance and
corporate strategy.
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Tina McMeckan, BLibArts&Sc, MBA, FAICD

Tina McMeckan was appointed a Non-Executive Director of Circadian in January 2008 and is Chairman of the audit committee. Her specific skills are in the commercialisation of science and technology and the energy sector. Ms McMeckan is presently Chairman of the Centre for Eye Research Australia and NanoVentures Australia Ltd, a Director of the Vision Cooperative Research Centre, Spatial Information Systems Ltd and the Global Carbon Capture and Storage Institute, and is also a Member of the National Board of Deacons law firm. She is a past Member of the Funds Management Committee of the AusIndustry Research and Development Board and has held senior investment management positions with the Australian Industry Development Corporation and Amrad Corporation Ltd (acquired by CSL Limited) focusing on capital raisings for innovation-based ventures. She also has extensive board expertise in public and private utility infrastructure including power production, networks and retailing business in the gas and electricity industries. Her other appointments as a Director have included United Energy, Snowy Hydro Trading, the Westar and Kinetik Energy Group, Victorian Power Exchange, Solaris Power and the formerly listed company Alinta Limited (October 2003 to August 2007).

Carlo Montagner, BSc, MSc, Grad Dip Child Psychology

a registered Australian patent attorney and has been involved in the biotechnology industry for over 20 years. He has significant expertise in technology commercialisation and corporate structuring and has negotiated and closed a number of major licensing transactions with international pharmaceutical and biotechnology companies throughout his career. Prior to his position at Circadian, Mr Klupacs was CEO of ES Cell International Pte Ltd (ESI), a pioneering company in the development of human embryonic stem cell technologies based in Singapore. Prior to his role at ESI, he spent two and a half years running the Monash Institute of Reproduction and Development (MIRD) in Melbourne as its Chief Operating Officer, where he founded six start-up companies, and before that was employed for over 11 years by Zenyth Therapeutics Limited (formerly Amrad Corporation Ltd) with the last four years in that company as a member of the executive team and Director of Intellectual Property.

Don Clarke, LLB (Hons)

Don Clarke was appointed a Non-Executive Director of Circadian in September 2005 and is Chairman of the remuneration committee and a member of the audit committee. He has been a partner with the law firm Minter Ellison since 1988, having joined that firm in 1980. Mr Clarke has broad commercial practice (involving predominantly ASX listed companies in the SME sector and larger private companies) and experience across a broad sector of industries. He is also a Non-Executive Director of two other ASX listed companies, Metabolic Pharmaceuticals Limited (appointed April 2007) and Webjet Limited (appointed January 2008). Mr Clarke is also a director of other private companies.

Carlo Montagner was appointed a Non-Executive Director of Circadian on 1 July 2008 and is a member of Circadian’s product development review committee and remuneration committee. He has a wealth of experience in heading global oncology businesses for chemotherapeutic products and has more than 16 years experience in the pharmaceutical industry in the U.S., Europe, Japan and in Australia. During his career, Mr Montagner has built specialty oncology practices, managing the strategic integration of both clinical and commercial aspects of drug portfolios. He was Executive Vice President & Global Head of Schering AG/Berlex Labs USA Oncology Business Unit. He has also held various positions at Aventis Pharma including Head of Oncology & Cardiovascular Business Unit at Sanofi-Aventis Japan and Global Senior Director of Marketing and Medical Affairs, managing the Taxanes chemotherapy portfolio. Mr Montagner is a Director of Abraxis Bioscience Australia Pty Ltd, CEO of privately held Specialised Therapeutics Australia and is a member of the Australian Institute of Company Directors. He also holds a Non-Executive Director position with ASX listed company Alchemia Limited whose board he joined in March 2008.

Jonathan Skipper, PhD

Dr Jonathan Skipper was appointed a Non-Executive Director of Circadian on 14 August 2008. He was formerly Non-Executive Director of Vegenics Limited (a Circadian subsidiary). Dr Skipper is Executive Director of the Ludwig Institute for Cancer Research Ltd (Executive Director for Intellectual Property and Licensing) and has 13 years experience with the Ludwig Institute for Cancer Research (LICR) in intellectual property management and technology licensing. He has scientific expertise in cancer biology and has completed a number of licensing contracts with large pharmaceutical companies. Dr Skipper is also the director of LICR's Office for

2009 annual report

Directors' Report (continued)

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Intellectual Property. Whilst at LICR, he has held various positions including Associate Director for Intellectual Property and Licensing, Director of the Office for Program Development and Manager, Office for Intellectual Property. Prior to joining LICR, Dr Skipper obtained his PhD in Immunology from the University College, London and conducted further research at the University of Virginia and the University of Oxford.

John Stocker, AO, MB, BS, BMedSc, PhD, FTS, FRACP

Dr John Stocker resigned as a Non-Executive Director of Circadian on 14 November 2008 after 12 years with the Company. He was also Chairman of the Company’s science committee (replaced by the product development review committee) and a member of the remuneration committee. He was formerly the Commonwealth Government Chief Scientist and was Chief Executive of CSIRO from 1990 to 1995. On 3 July 2007, Dr Stocker was appointed as Chairman to the Board of CSIRO. He is also a Principal of Foursight Associates Pty Ltd and holds or held directorships in the following listed companies during the past three years:

Telstra Corporation Limited (Director since 1996) Nufarm Limited (Director since 1998) Sigma Pharmaceuticals Ltd (Director since December 2005)

James MacKenzie, BBus, FCA, FAICD

James MacKenzie resigned as a Non-Executive Director of Circadian on 31 July 2008 after six years with the Company. He was also Chairman of the Company’s audit committee and a member of the remuneration committee. Mr MacKenzie has previously held the positions of Managing Director, Funds Management and Insurance at the ANZ Banking Group, Chief Executive Officer of Norwich Union Australia and the Transport Accident Commission. A Chartered Accountant by profession, Mr MacKenzie was also a Partner in the Melbourne and Hong Kong offices of an international accounting firm now part of Deloitte, and he remains involved with Deloitte as a consultant. He is currently Chairman of Mirvac Group and is a Director of the Victorian WorkCover Authority. Mr MacKenzie also currently holds or held directorships in the following listed companies during the past three years:

Mirvac Group (Director since January 2005, Chairman since November 2005)

Pacific Brands Limited (Director since May 2008, Chairman since November 2008)

Strategic Pooled Development Ltd (Director since November 2005) Bravura Solutions Ltd (Director since April 2006)

firm now part of Ernst & Young. She has been a Chartered Accountant for 18 years. Ms Korchev is also a Director and Company Secretary for Vegenics Limited (a Circadian subsidiary) and CancerProbe Pty Ltd (60% owned by Circadian). She is a Director of and Company Secretary for Syngene Limited (42% owned by Circadian) and was Company Secretary of Antisense Therapeutics Limited from November 2000 up until June 2006.

Directors’ Interests

At the date of this report, the interests of each director of the Company in the contributed equity and share options of the Company are as follows:

	Number of	Number of	Number of
	shares held	shares held	options over
	directly	indirectly	ordinary shares
Dominique Fisher	-	117,500	-
Robert Klupacs	85,481	-	1,000,000
Don Clarke Tina McMeckan	- 20,000	80,000 -	- -
Carlo Montagner	-	-	-
Jonathan Skipper	-	-	-

Share Options

Unissued Shares

As at the balance sheet date and the date of this report, details of Circadian Technologies Limited’s unissued ordinary shares or interests under option are as follows:

Unissued Ordinary Shares:

Number of deferred shares 1,155,000

As part of the consideration for the acquisition of the minority interests in Vegenics Limited on 14 August 2008, 1,155,000 Circadian shares will be issued on the earlier to occur of certain product development milestones or the second anniversary of the date of Circadian’s acquisition of the minority interests in Vegenics (i.e. 14 August 2010).

Refer to the section in this report headed Remuneration Report for details on the terms and conditions of the options granted under the Company’s option plan.

No options were exercised during the financial year.

Melco Crown Entertainment Limited (Director since April 2008) Gloucester Coal Limited (Director since May 2009) Zenyth Therapeutics Ltd (Director from April 2005 to November 2006)

Company Secretary

Natalie Korchev, BCom, ACA

Natalie Korchev, who is also the company’s CFO and Head of Operations, has been Company Secretary of Circadian Technologies Limited for nine years. Prior to holding this position she was a senior audit manager with an international accounting

circadian technologies limited

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Options:

*Options:*
Number of shares under option	1,400,000	120,000	500,000	985,000	100,000	100,000
Exercise prices	$1.50	$1.50	$1.30	$1.00	$1.00	$1.00
Vesting date ^	8/2/2011	9/3/2011	8/2/2011	15/9/2011	15/12/2011	26/6/2012
Expiry date	8/2/2012	9/3/2012	8/2/2012	15/9/2012	15/12/2012	26/6/2013

^ These dates are the first exercise date if the options vest. The vesting dates are the dates when share price hurdles are met for each of the three tranches of options granted which are $1.875, $2.25 and $2.625 for the options with a $1.50 exercise price, $1.625, $1.95 and $2.275 for the options with a $1.30 exercise price and $1.25, $1.50 and $1.75 for the options with a $1.00 exercise price (see the Remuneration Report for further details). The Company’s share price at 30 June 2009 was $0.73.

Dividends

No cash dividends have been paid, declared or recommended during or since the end of the financial year by the Company.

Principal Activities of the Consolidated Entity

Circadian Technologies Limited’s principal activity is to develop and commercialise therapies primarily for cancer as well as for other serious diseases. Circadian moved from being a biotechnology investor and incubator of early stage technologies to a developer of angiogenesis-based biological therapeutics, including antibodies, for cancer and other serious diseases pursuant to the strategy it announced to the market in June 2008 and has continued to develop the business in line with this strategy in 2009 (also see the Operations Report). The extensive intellectual property portfolio covering key targets (Vascular Endothelial Growth Factors C and D) for the treatment of diseases associated with angiogenesis has been accumulated in Circadian’s unlisted subsidiary Vegenics Limited. The therapeutic applications for the VEGF technology, which functions in regulating blood supply (angiogenesis), are substantial and broad.

Operating and Financial Review

Results

Income Statement

The current year results reflect the change in principal activities of the Group, as described earlier, which has transformed from being a biotechnology seed investor and incubator of early stage technologies into a drug developer primarily for treatments of cancer. Accordingly, the Group has invested in the advancement of its VGX-100, VGX-200 and VGX-300 cancer treatment programs.

A summary of the results is as follows:

The consolidated net loss of the Group for the year was $9,921,670 after an income tax expense of $45,867 (2008: loss of $2,286,119 after an income tax expense of $1,169,250).
Consolidated cash balance as at 30 June 2009 amounted to $38,836,560 (2008: $46,216,626).
The net tangible asset backing per share as at 30 June 2009 was $0.86 (2008: $1.28) whereas Circadian’s share price was $0.73 (2008: $0.88).
Direct R&D expenditure amounted to $4,483,438 (2008: $3,419,266) of which $3.5M relates to the Group’s VGX-100, VGX-200 and VGX-300 programs to develop cancer therapies. The balance of the expenditure relates to R&D activities which were committed to in previous years under Circadian’s former strategy for which there are no future funding commitments.
Net royalty income of $721,618 (2008: $359,918).
Patent costs of $1,729,030 (2008: $1,838,058).
After the disposal of its remaining 1.8% holding in Avexa Limited, the Group now only retains interests in two listed investments. These are in Antisense Therapeutics Limited and a small investment in Optiscan Imaging Limited. The combined market value of these investments (including indirect interests) as at 30 June 2009 was $5,142,317. Sales proceeds received from the disposal of the balance of the Avexa shares and of the rights received during the year amounted to a total of $680,353. A net loss of $347,393 was recognised in the income statement from these transactions.

Commensurate with the Group’s strategy, overhead related costs, primarily personnel costs, have increased since last year. This increase predominantly reflects the employment of persons directly working on core drug development activities.

The results also reflect the Group’s share of the losses recognised by Antisense Therapeutics Limited of $496,294 in accordance with AASB 128: Investments in Associates and impairment losses on the investment in Optiscan of $437,590.

Last year’s consolidated net loss for the Group is lower than this year’s also due to a gain of $4,508,091 on the sale of interests in listed investments Avexa Limited and Metabolic Pharmaceuticals Limited.

Total Operating Costs

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Research & development
Patents
Administrative
Investment related
Other
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2009 annual report

Directors' Report (continued)

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Operating and Financial Review (continued)

Acquiring complete ownership of Vegenics

As stated in the Operations Report, Circadian completed the acquisition of 100% of Vegenics on 14 August 2008 (previously 67% owned by Circadian), providing it with complete ownership and control of rights to Vegenics’ extensive product pipeline and intellectual property which forms the basis for Circadian’s new core business. It acquired the additional 33% interest from the Ludwig Institute for Cancer Research Ltd (LICR) and Licentia Limited (Licentia). Under this transaction LICR and Licentia have become substantial shareholders of Circadian. Consideration for the acquisition of LICR’s and Licentia’s interests in Vegenics is in two tranches:

Tranche 1:

5,117,430 Circadian shares were issued to LICR (2,589,635 shares) and Licentia (2,527,795 shares) on 14 August 2008. This equates to a combined interest of 11.3% after the share issue;
50% of the shares were escrowed for a period of 12 months from date of issue. Subsequent to year end, on 14 August 2009 these shares were released from escrow. The remaining 50% are escrowed until 14 August 2010 (24 months from their issue date); and

share buy-back for the shares held by Fibre Optics. The expected proceeds from the share buy-back are $54,000. The original cost of the investment was $700,000, however the carrying value of this investment in Fibre Optics’ accounts at 30 June 2009 is $54,000 (note: the net assets of CancerProbe as at this date is $60,554). The completion of this agreement is subject to approval of the change of control from the Department of Industry, Tourism and Resources (DITR) in accordance with a grant agreement between CancerProbe and the DITR.

Corporate Objectives and Likely Developments

The Group’s objective is to develop therapeutic products primarily to treat cancer based on its intellectual property relating to Vascular Endothelial Growth Factors (VEGF) C, D and R3.

The Group has four drug development programs underway, including three antibody products, for the treatment of cancer, one of which is being developed and funded by licensee ImClone Systems Inc (recently acquired by Eli Lilly & Co). It also has one late stage clinical asset, Trinam[®] , in Phase 3 clinical trials being developed and funded by another licensee, UK company Ark Therapeutics Group plc, which is outside of the field of oncology.

The commercialisation objective is to:

a cash payment of Euro 400,000 (A$680,272) was made to Licentia.

Tranche 2:

A further 1,155,000 Circadian shares will be issued to LICR (532,455 shares) and Licentia (622,545 shares) on the earlier to occur of certain product development milestones or the second anniversary of the date of Circadian’s acquisition of LICR’s and Licentia’s interests in Vegenics (i.e. 14 August 2010).

The above issue and expected issue of shares were ratified/approved at the Company’s November 2008 Annual General Meeting.

LICR’s and Licentia’s nominee, Dr Jonathan Skipper (LICR’s Executive Director for Intellectual Property and Licensing) was appointed to the board of Circadian as part of this transaction.

Review of Operations

The Operations Report, which forms part of this Directors’ Report, provides information regarding the consolidated entity’s key corporate activities and the progress achieved during the 30 June 2009 financial year.

Significant Changes in the State of Affairs

Refer to the Principal Activities section of this report.

Significant Events after Balance Date

Secure development partnerships for one or more of the Group’s therapeutic programs.
Retain development of one selected therapeutic to proof of efficacy in humans and partner thereafter.
Selectively exploit/commercialise other aspects of the portfolio, namely:
therapeutics outside the oncology area
clinical diagnostics and reagents for early revenues.

The intellectual property accumulated by the Group has applications not just in cancer, the primary therapeutic development focus, but also in a number of other areas such as eye disease.

The Group will continue to expand its intellectual property rights and product portfolio around the core area of cancer as well as in other disease areas.

The likely developments in the Group’s operations, to the extent that such matters can be commented upon are covered in the Operations Report.

Environmental Regulations

The Group is not subject to significant environmental regulations.

Indemnification and Insurance

During the financial year ended 30 June 2009, the Company indemnified its directors, the company secretary and executive officers in respect of any acts or omissions giving rise to a liability to another person (other than the Company or a related party) unless the liability arose out of conduct involving a lack of good faith.

circadian technologies limited

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In addition, the Company indemnified the directors, the company secretary and executive officers against any liability incurred by them in their capacity as directors, company secretary or executive officers in successfully defending civil or criminal proceedings in relation to the Company. No monetary restriction was placed on this indemnity.

The Company has insured its directors, the company secretary and executive officers for the financial year ended 30 June 2009. Under the Company’s Directors’ and Officers’ Liabilities Insurance Policy, the Company shall not release to any third party or otherwise publish details of the nature of the liabilities insured by the policy or the amount of the premium. Accordingly, the Company relies on section 300(9) of the Corporations Act 2001 to exempt it from the requirement to disclose the nature of the liability insured against and the premium amount of the relevant policy.

Directors’ Meetings

The number of meetings of directors and meetings of committees of the board held during the year are set out below. Attendance by the directors of these meetings as relevant to each of them is as shown. Where a director did not attend all meetings of the Board or relevant committee, the number of meetings for which the director was eligible to attend is shown in brackets. It is the Company’s practice to invite all directors to committee meetings irrespective of whether they are members.

Directors' Meetings	Meetings of Committees
	Audit Remuneration1 PDRC2
Number of meetings held: 16 Number of meetings attended: Dominique Fisher 15 [16] Robert Klupacs 16 Don Clarke 16 Tina McMeckan 15 [16] Carlo Montagner3 5 [16] Jonathan Skipper 12 [16] John Stocker4 5 [6] James MacKenzie5 0	4 1 2 4 3 [4] 1 4 1 2 0 0 0

1 All directors in office attended the remuneration committee meeting in May 2009.
2 The science committee was replaced by the product development review committee (PDRC).
3 Carlo Montagner was on an approved leave of absence from 17 October 2008 to 8 April 2009.
4 John Stocker resigned from the Company on 14 November 2008.
5 James MacKenzie resigned from the Company on 31 July 2008. There were no directors or committee meetings held during the month of July 2008.

Committee Membership

During the year the Company had an audit committee, remuneration committee and product development review committee (PDRC) of the board of directors. The PDRC comprises members with collectively extensive experience in drug development and in the international pharmaceutical industry.

Members acting on the committees of the board during the year were:

Audit	Remuneration	PDRC*
T McMeckan (Chairman)	D Clarke (Chairman)	E Malta (Chairman)
D Fisher	C Montagner >	C Montagner
D Clarke	J Stocker ^	R Howard
J MacKenzie #	J MacKenzie #	G Morstyn R Smalling
		R Morgan

James MacKenzie resigned as Chairman of the audit committee and as a member of the remuneration committee on 31 July 2008. Tina McMeckan replaced James MacKenzie as Chairman of the audit committee on 21 August 2008.
Carlo Montagner was appointed as a member of the remuneration committee on 21 August 2008.
^ John Stocker resigned as a member of the remuneration committee on 14 November 2008.
Carlo Montagner is a member of this committee and the other members are independent consultants retained by the Company. Further details of these members are included within the Corporate Governance Statement.

Auditor Independence

The directors have obtained a declaration of independence from Ernst & Young, the Group’s auditors, which is contained in the financial report.

Non-Audit Services

The following non-audit services were provided by the entity’s auditor, Ernst & Young. The directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised.

Ernst & Young received or are due to receive the following amounts for the provision of non-audit services:

Tax compliance services $28,310 Other tax services $23,810 Assurance related $13,956

2009 annual report

Directors' Report (continued)

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Remuneration Report (audited)

This Remuneration Report forms part of the Directors’ Report and has been prepared in accordance with section 300A of the Corporations Act 2001 for the Company and the consolidated entity for the year ended 30 June 2009.

This report provides a summary of the remuneration policies and practices adopted by Circadian during the 2009 financial year for directors and key management personnel as defined by the Accounting Standards AASB124: Related Party Disclosures . Key management personnel includes persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, including any director (whether executive or otherwise) of the parent company, and includes all the executives in the parent and the Group.

Details of Key Management Personnel

The details of key management personnel including the five highest remunerated executives of the Company and the Group are provided below:

(i) Directors

Dominique Fisher Chairman (non-executive) Robert Klupacs Managing Director Don Clarke Director (non-executive) Tina McMeckan Director (non-executive) Carlo Montagner Director (non-executive) (appointed 1 July 2008) Jonathan Skipper Director (non-executive) (appointed 14 August 2008) John Stocker Director (non-executive) (resigned 14 November 2008) James MacKenzie Director (non-executive) (resigned 31 July 2008) (ii) Executives Natalie Korchev Chief Financial Officer & Head of Operations, Company Secretary Alex Szabo Head of Business Development Megan Baldwin Head of Preclinical R&D Richard Chadwick Head of Intellectual Property

Except as noted, the above named persons held their current position for the whole of the financial year and since the end of the financial year.

Remuneration Committee

The remuneration committee of the Board of Directors of the Company is responsible for determining and reviewing compensation arrangements for the executive and non-executive directors and other key management personnel.

The remuneration committee assesses the appropriateness of the nature and amount of compensation of key management personnel on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum shareholder benefit from the retention of a high quality board and executive team.

Remuneration Policy

The remuneration of key management personnel is designed to enable the Group to attract, motivate and retain non-executive officers and executive officers who will create value for shareholders and to fairly and responsibly remunerate them having regard to their performance, the performance of the Group and the general pay environment.

To this end, the Group has adopted the following principles in its remuneration framework: provide competitive rewards to attract high calibre executives; link executive rewards to shareholder value; and establish appropriate, demanding performance hurdles for variable executive remuneration.

Remuneration Structure

In accordance with best practice corporate governance, the structure of non-executive director and executive compensation is separate and distinct.

Non-Executive Director Remuneration

Objective

The Board seeks to set aggregate remuneration at a level which provides the Company with the ability to attract and retain directors of the highest calibre, while incurring a cost which is acceptable to shareholders.

Structure & Performance

The Company’s constitution and the ASX Listing Rules specify that the aggregate compensation of non-executive directors will be determined from time to time by a general meeting. An amount (not exceeding the amount approved at the General Meeting) is determined by the Board and then divided between the nonexecutive directors as agreed. The latest determination was at the Annual General Meeting on 6 October 2005 when shareholders approved the aggregate maximum sum to be paid or provided as compensation to the non-executive directors as a whole (therefore excluding the Managing Director and the Executive Director) for their services as $500,000 per annum. Currently, non-executive directors are compensated to an aggregate of $298,000 per annum.

The manner in which the aggregate compensation is apportioned amongst non-executive directors is reviewed periodically.

Each director receives a fee for being a director of the Company (currently ranging between $46,000 to $75,000 per annum) and an additional annual fee of $5,000 per committee is also paid for each Board committee on which a director sits. The payment of additional fees for serving on a committee recognises the additional time commitment required by directors who serve on one or more sub committees. Jonathan Skipper is an executive director with the Ludwig Institute for Cancer Research Ltd (LICR), a not-forprofit organisation. In accordance with LICR policy, he waived his

circadian technologies limited

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rights to directors fees for the year ended 30 June 2009. As a gesture of good faith the Group paid $40,500 directly to LICR as a charitable donation.

Non-executive directors were not compensated by way of issue of securities in the Company during the year ended 30 June 2009, however the introduction of a Circadian Technologies Limited NonExecutive Director Share Plan (NED Share Plan) was approved at the Company’s November 2008 Annual General Meeting under which present and future non-executive directors may elect to receive ordinary shares in Circadian in lieu of receiving such proportion of their entitlement to director’s remuneration. Shares under the NED Share Plan will either be issued by the Company or purchased on the ASX on behalf of participants. The extent to which shares instead of cash is received by a non-executive director is a decision solely for the non-executive director concerned. To date no shares under this scheme have been issued.

The Board considers it appropriate that each non-executive director should be given an opportunity to demonstrate their commitment to, and support for, the Company through the sacrificing of all, or a portion of, their director's fees for Circadian shares at market value. The Board considers that this is consistent with trends in current market practice for listed entities and notes that directors will be required to hold shares for three years (subject to the earlier occurrence of certain customary prescribed events including: if a change in the control of the Company occurs; the holder of the shares resigns from his/her position as a non-executive director; if required to do so under any law or Listing Rule; the shares are released by the Board (in its discretion)).

The Board is responsible for reviewing its own performance. Board performance is monitored on an informal basis throughout the year with the objective of annual formal performance evaluation (although this may occur every 12 to 20 months). An evaluation was conducted in April 2009 of the Board’s performance against specific qualitative performance criteria, some of which are measurable. The next evaluation is planned to be performed before the end of the 2010 financial year. The performance evaluation of the nonexecutive directors is aligned with their responsibilities under the Board Charter and includes areas such as: board structure, board role and responsibilities, strategy and planning, monitoring of company performance and board culture and relationships (amongst each director and with management).

The compensation of non-executive directors for the years ended 30 June 2009 and 30 June 2008 are detailed in Table 1 of this report.

Structure & Performance

In determining the level and make-up of executive remuneration, the remuneration committee engages external consultants as needed to provide independent advice and/or may also perform its own market research by accessing relevant remuneration reports prepared by third parties.

Compensation consists of the following key elements, the relative proportions of which are market based (note that short-term incentives were introduced for the first time during the 30 June 2007 financial year):

Fixed remuneration (base salary and superannuation)
Variable remuneration:
Short-term incentive (STI); and
Long-term incentive (LTI)

The non-executive directors are responsible for evaluating the performance of the Managing Director and of the other management. The Managing Director also evaluates the performance of the other management. The performance evaluation of the management involves an assessment of the Company’s business performance, whether short-term operational targets and individual performance objectives are being achieved and whether long-term strategic objectives are being achieved. Specific and measurable qualitative and quantitative performance criteria are used. Due to the nature of the Company’s activities and the stage that it is at with respect to these activities, profitability is not a performance measure for STI’s although effective management of the Company’s resources in achieving value for shareholders is expected. LTI’s are linked to share price appreciation and KPI’s for STI’s are linked to activities/ milestones that are expected to create value for shareholders.

The performance of the Managing Director and the other management is monitored on an informal basis throughout the year with the objective of performing a formal evaluation once a year. The process for evaluating the Managing Director's and management's performance was reviewed in August 2008. The last remuneration committee at which a review of remuneration structure for the management was performed in May 2009. The new key performance indicators are expected to be approved within the next month.

Table 1 of this report sets out the remuneration of directors and executives of the Company for the years ended 30 June 2009 and 30 June 2008 showing the proportion of fixed remuneration and variable remuneration.

Fixed Remuneration

Executive Remuneration

Objective

The Company aims to fairly and responsibly remunerate executives with a level and mix of remuneration commensurate with their position and responsibilities within the Company and so as to:

reward executives for company performance;

Objective

The level of fixed compensation is set so as to provide a base level of compensation which is both appropriate to the position and is competitive in the market. As noted above, the remuneration committee has access to external advice independent of management.

link reward with the strategic goals of the Company;
align the interest of executives with those of shareholders; and
ensure total compensation is competitive by market standards.

2009 annual report

Directors' Report (continued)

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Remuneration Report (audited) (continued)

Fixed Remuneration (continued)

Structure

Executives’ fixed compensation comprises salary and superannuation and are reviewed every 12 to 20 months by the remuneration committee.

Variable Remuneration – Short Term Incentive (STI)

Objective

The objective of the STI program is to link the achievement of the Group’s operational targets with the remuneration received by the executives charged with meeting those targets. The total potential STI available is set at a level so as to provide sufficient incentive to the executive to achieve the operational targets and such that the cost to the Group is reasonable in the circumstances.

Structure

Actual STI payments in the form of cash bonuses to each senior executive depends on the extent to which specific targets set at the beginning of the financial year (or shortly thereafter) are met. The targets consist of a number of Key Performance Indicators (KPIs) covering corporate objectives and individual measures of performance. Individual KPIs are linked to the Company’s strategy and drug development annual business plan. Examples of personal objectives include the achievement of certain milestones for projects, progressing out-licensing/ collaboration agreements for one or more of the Company’s drug development programs/assets, as well as corporate activities such as the acquisition of the minority interests in Vegenics which has provided Circadian with outright control to the intellectual property assigned to its subsidiary Vegenics relating to VEGF-C/D and VEGFR-3.

On an annual basis, after consideration of performance against KPIs, the remuneration committee, in line with its responsibilities, determines the amount, if any, of the STI to be paid to each senior executive. This process occurs within two months after the relevant financial year end.

The maximum annual STI cash bonus available for each senior executive is subject to the approval of the remuneration committee. Payments of the STI bonus are made in the following reporting period.

The maximum annual STI cash bonus available for each other member of management is determined by the managing director.

STI bonus for the 2009 financial year

The remuneration committee considered the STI payment for the 2009 financial year within the first two months after the end of that year. The STI cash bonus that is to be paid for the 2009 financial year and which has been accrued for key management personnel is $195,708 plus relevant on-costs. This has been determined on the basis of KPIs achieved by the management.

Variable Remuneration – Long Term Incentive (LTI)

Objective

The objective of the LTI plan is to reward key management personnel in a manner that aligns this element of compensation with the creation of shareholder wealth.

As such, LTI grants are made to key management personnel who are able to influence the generation of shareholder wealth and thus have a direct impact on the Company’s performance against the relevant long term performance hurdle.

Structure

LTI grants are delivered in the form of share options to key management personnel and certain employees.

In valuing transactions settled by way of issue of options, no account is taken of any performance conditions, other than market conditions linked to the price of the shares of Circadian Technologies Limited. All options issued have market performance conditions so as to align shareholder return and reward for the Company’s key management personnel. A policy in relation to the key management personnel and employees limiting their exposure to risk in relation to the securities is being put in place.

Options issued in 2004

With respect to the options issued in the 2004 financial year, the exercise prices were set at substantially higher prices than the Company’s share price at grant date.

The contractual life of each option granted was five years and there were no cash settlement alternatives. The options were not exercised and expired in September 2008.

Options issued in financial years 2007 to 2009

In January 2007, a Circadian Senior Management Option Plan (Option Plan) was implemented to offer options which are subject to performance hurdles. This replaced the Circadian Executive Performance Rights Plan. The options issued to employees (including senior executives) in 2007, 2008 and 2009 pursuant to this Option Plan were divided equally into three tranches.

The number of options in each tranche will vest on the satisfaction of the following performance conditions during the relevant option period (2007 options within 5 years of the grant date; 2008 and 2009 options within approximately 4 years of grant date) (Performance Hurdles). The 2007 options issued have an exercise price of $1.50; the 2008 options issued have an exercise price of $1.30 and the 2009 options issued have an exercise price of $1.00 (Exercise Price).

Tranche 1 – a market price for a Circadian share (Share Price) achieves not less than 125% of the Exercise Price;
Tranche 2 – the Share Price achieves not less than 150% of the Exercise Price; and
Tranche 3 – the Share Price achieves not less than 175% of the Exercise Price.

There have been no alterations to the STI bonus plans since their inception.

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The Share Price is to be calculated as the volume weighted average share price of Circadian shares traded on the ASX over a consecutive 15 day trading period.

The options issued in the 2008 financial year were to Robert Klupacs, pursuant to an Executive Contract dated 20 December 2007.

Vested options may only be exercised at any time in the last 12 months of the relevant option period.

The Exercise Price is subject to any adjustment which is required under the ASX Listing Rules as a consequence of a capital reorganisation or a pro-rata rights issue of shares which occurs after the grant of the options but prior to the exercise of the options.

The Board has residual discretion to accelerate vesting (i.e. reduce or waive the Performance Hurdles) and exercise of options in the event of a takeover or merger or any other circumstance in accordance with the terms of the Option Plan.

Options in relation to which performance conditions have not been satisfied (i.e. that do not vest) will lapse and will not be able to be exercised, except in circumstances as described below.

Options which have not vested will lapse where an option holder ceases employment with Circadian other than on retirement, redundancy, death or total and permanent disablement, or unless as otherwise determined by the Board in its absolute discretion.

Where an option holder has ceased employment with Circadian as a result of resignation, retirement, redundancy, death or total and permanent disablement prior to the end of a performance period but not before the first anniversary of grant date, options (whether vested or not) may be retained by the option holder on a pro-rata basis (the pro-rata being calculated over the period from grant date).

Shareholder Returns/Value

The following is a summary of shareholder returns/value for the current year and in the previous four financial years:

	2009	2008	2007	2006	2005
	$	$	$	$	$
Basic (loss)/earnings
per share	(0.22)	(0.03)	0.28	(0.16)	0.54 (i)
Capital return per share	-	-	-	-	0.38 (i)
Dividends per share	-	-	-	-	0.27 (i)
NTA backing per share
@ 30 June	0.86	1.28	1.52	1.41	1.12
Circadian share price
@ 30 June	0.73	0.88	1.28	1.05	1.18

Due to the nature of the Group’s activities (being in the biotechnology industry) as described under Principal Activities, results year to year do fluctuate. The share price has decreased since last year end as it has for many companies in the biotechnology sector. The factors contributing to this year’s and last year’s financial results are described under Operating and Financial Review of this report.

Employment contracts

Mr Robert Klupacs, who was appointed Managing Director effective 1 March 2008, is employed under a rolling contract. The current employment contract commenced on 1 December 2007. Under the terms of the present contract (including any subsequent board approvals relating to fixed remuneration):

Mr Klupacs receives fixed remuneration of $367,500 per annum.
Mr Klupacs may resign from his position and thus terminate this contract by giving 3 months notice. On resignation, any unvested LTI options will be forfeited.
The Company may terminate this employment agreement by providing:
6 months notice; or
payment in lieu of the notice period (as detailed above) based on the fixed component of Mr Klupacs’ remuneration and a pro-rata of that part of the annual STI (if any) that is payable in cash at the time of termination. As stated earlier in this report, STI’s are payable on the achievement of KPI’s.

On termination on notice by the Company, any LTI options that have vested or that will vest during the notice period will be released. LTI options that have not yet vested will be forfeited.

The Company may terminate the contract at any time without notice if serious misconduct has occurred. Where termination with cause occurs, Mr Klupacs is only entitled to that portion of remuneration that is fixed, and only up to the date of termination. On termination with cause, any unvested options will immediately be forfeited.

Mr Klupacs was also granted 500,000 options under the terms of the contract. Refer to “Options issued in financial years 2007 to 2009” for terms and conditions of the options granted.

(i) In the 2005 financial year, Circadian made a profit due to its 15% interest in a genomics instrumentation company (Axon Instruments Inc) being acquired by a U.S. entity. This provided the Company with a gain of approximately $30 million on the transaction (a non-recurring transaction). Due to this and the significant increase in the cash balance arising from this transaction, the Company paid a dividend and made a capital return to its shareholders.

2009 annual report

Directors' Report (continued)

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Remuneration Report (audited) (continued)

Remuneration of key management personnel

Table 1: Remuneration for the year ended 30 June 2009 (Consolidated)

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Total
Post Termination Share-based Performance
Short-Term Employment Long-Term Benefits Payment Total Related
Salaries & Cash Super- Long service Termination Options/
Fees Bonus annuation leave Pay rights
$ $ $ $ $ $ $ %
Non-Executive Directors:
D Fisher 2009 80,004 - 7,200 - - - 87,204 -
2008 80,004 - 7,200 - - - 87,204 -
D Clarke 2009 56,004 - 5,040 - - - 61,044 -
2008 56,004 - 5,040 - - - 61,044 -
T McMeckan 2009 51,000 - 4,590 - - - 55,590 -
2008 23,015 - 2,071 - - - 25,086 -
C Montagner [1] 2009 55,170 - 4,965 - - - 60,135 -
2008 - - - - - - - -
J Skipper [2] 2009 - - - - - - - -
2008 - - - - - - - -
J Stocker [3] 2009 26,249 - 2,362 - - - 28,611 -
2008 69,996 - 6,300 - - - 76,296 -
J MacKenzie [4] 2009 4,667 - 421 - - - 5,088 -
2008 56,004 - 5,040 - - - 61,044 -
Sub-total 2009 273,094 - 24,578 - - - 297,672 -
Non-Executive Directors 2008 285,023 - 25,651 - - - 310,674 -
Executive Directors:
R Klupacs 2009 367,500 80,648 40,334 - - 128,974 617,456 33.95
2008 341,669 87,500 38,625 - - 107,272 575,066 33.87
L Serry [5] 2009 - - - - - - - -
2008 417,160 - 34,925 7,308 - 11,095 470,488 2.36
G Kaufman [6] 2009 - - - - - - - -
2008 131,283 - 9,600 - 46,359 - 187,242 -
Other Key Management Personnel:
N Korchev 2009 263,748 44,000 27,697 7,104 - 37,451 380,000 21.43
2008 249,996 45,000 26,550 7,438 - 22,287 351,271 19.16
A Szabo [7] 2009 230,888 27,500 23,255 - - 18,954 300,597 15.45
2008 - - - - - - - -
M Baldwin [8] 2009 168,804 29,700 17,865 - - 15,163 231,532 19.38
2008 - - - - - - - -
R Chadwick [9] 2009 168,804 13,860 16,440 - - 12,131 211,235 12.30
2008 - - - - - - - -
Sub-total 2009 1,199,744 195,708 125,591 7,104 - 212,673 1,740,820 -
Executive KMP 2008 1,140,108 132,500 109,700 14,746 46,359 140,654 1,584,067 -
2009 1,472,838 195,708 150,169 7,104 - 212,673 2,038,492 -
Totals
2008 1,425,131 132,500 135,351 14,746 46,359 140,654 1,894,741 -
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1 C Montagner was appointed to the board on 1 July 2008.
2 J Skipper was appointed to the board on 14 August 2008. Dr Skipper is an executive director of the Ludwig Institute of Cancer Research Ltd (LICR) and in accordance with LICR policy, he waived his rights to a directors fee. As a gesture of good faith, the Group paid $40,500 directly to LICR as a charitable donation.
3 J Stocker resigned as a non-executive director of Circadian on 14 November 2008.
4 J MacKenzie resigned as a non-executive director of Circadian on 31 July 2008.
5 L Serry retired as the managing director of Circadian on 29 February 2008.
6 G Kaufman resigned as an executive director of Circadian on 25 October 2007.
7 A Szabo was employed by the Group on 1 July 2008.
8 M Baldwin was employed by the Group on 14 January 2008. Dr Baldwin did not meet the definition of a key management person under AASB 124 for the 2008 financial year but is a key management person for 2009.
9 R Chadwick was employed by the Group on 1 February 2008. Dr Chadwick did not meet the definition of a key management person under AASB 124 for the 2008 financial year but is a key management person for 2009.
No options have been exercised by the executive directors and other executives in the last seven years.
As at 30 June 2009, no options had vested and all options were “out-of-the-money” (exercise prices range between $1.00 and $1.50 whereas the Company’s share price at 30 June 2009 was 73 cents).

The value of the options attributed to compensation of certain key management personnel for the current financial year represent the expensing of options that were granted in the 2007, 2008 and 2009 financial years, and has been determined by allocating the fair value of the options equally over their respective vesting periods.

Refer to note 26 of the financial report for details on the valuation of options.

Table 2: Compensation Options: Granted and vested during the year (Consolidated)

	Granted during year Terms & Conditions for each Grant Vested during year
	No. Grant Date Fair value per option at grant date (note 26) Exercise price per option (note 26) Expiry Date First Exercise Date Last Exercise Date No.
Directors R Klupacs Executives* N Korchev A Szabo M Baldwin R Chadwick Total Options
	2009 - -
	2008 500,000 18/2/08 $0.246 - $0.276 $1.30 8/2/12 8/2/11 8/2/12 -
	2009 200,000 15/9/08 $0.280 - $0.291 $1.00 15/9/12 15/9/11 15/9/12 -
	2008 - -
	2009 250,000 15/9/08 $0.280 - $0.291 $1.00 15/9/12 15/9/11 15/9/12 -
	2008 - -
	2009 200,000 15/9/08 $0.280 - $0.291 $1.00 15/9/12 15/9/11 15/9/12 -
	2008 - -
	2009 160,000 15/9/08 $0.280 - $0.291 $1.00 15/9/12 15/9/11 15/9/12 -
	2008 - -
	2009 810,000 -
	2008 500,000 -

During the 2008 financial year, options were granted as equity remuneration benefits under the long-term incentive plan to the Managing Director prior to his appointment as Managing Director.

There were no options granted or shares issued to key management personnel since the end of the financial year.

2009 annual report

Directors' Report (continued)

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Remuneration Report (audited) (continued)

Remuneration of key management personnel (continued)

Table 3: Options granted as part of remuneration (Consolidated)[1]

	Total value of	Value of options	Value of options	Value of options	Remuneration
	options granted	expensed during	exercised during	lapsed/forfeited	consisting of options
	during the year	the year2	the year	during the year	for the year3
	$	$	$	$	%
N Korchev	57,453	15,163	-	-	9.85
A Szabo	71,817	18,954	-	-	6.30
M Baldwin	57,453	15,163	-	-	6.55
R Chadwick	45,963	12,131	-	-	5.74

1 For details on the valuations of the options, including models and assumptions used, refer to note 26 of the financial statements.
2 The values in this column reflect the amount recognised as an expense during the year only on the options granted during the year.
3 This column reflects the percentage of remuneration consisting of options expensed during the year relating to current year and prior year grants.

No options were exercised during the current year nor did any options lapse during the year.

There were no alterations to the terms and conditions of options granted as remuneration since their grant date.

Shares issued on exercise of compensation options (Consolidated)

There were no options exercised by key management personnel during the 2009 and 2008 financial years as they were either “out of the money” or had not vested.

This report has been signed in accordance with a Resolution of the Directors made on 20 August 2009.

For and on behalf of the Board:

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Robert Klupacs Director

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Dominique Fisher Director

Melbourne

20 August 2009

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Corporate Governance Statement

Introduction

The Corporate Governance framework for Circadian Technologies Limited and its subsidiaries (the Group) are set by the Circadian board having regard to compliance with legal requirements, the particular circumstances of the Group and the best interests of the shareholders.

On 2 August 2007, the ASX Corporate Governance Council released the Corporate Governance Principals and Recommendations (2nd edition) with the change in the reporting requirements applying to the Group’s first financial year commencing on or after 1 July 2008. The Corporate Governance Statement details Circadian’s corporate governance practices which includes their compliance with the aforementioned requirements. This statement is current as at 14 September 2009 and should be read in conjunction with the Directors’ Report within this annual report.

Circadian Technologies Limited’s Corporate Governance Statement is structured with reference to the Corporate Governance Council’s principles and recommendations, which are as follows:

Principle 1 Lay solid foundations for management and oversight

Principle 2 Structure the board to add value

Principle 1 – Lay solid foundations for management and oversight

The board of directors is in place to represent and protect the interests of the company’s shareholders. They are responsible for the corporate governance of the Group and guide and monitor the business and affairs of Circadian Technologies Limited on behalf of its shareholders.

Board functions and charter

The Board Charter sets out the function and responsibilities of the board in order to facilitate board and management accountability for Circadian’s performance and strategic direction. The matters reserved for the board and what has been delegated to senior executives is described in the Board Charter which is available on Circadian's website: www.circadian.com.au.

To ensure that the board is well equipped to discharge its responsibilities it has established guidelines for the nomination and selection of directors and for the operation of the board. Upon appointment of a new director, a formal letter of appointment is provided and an induction pack which includes details pertaining to the Company and the obligations of the individual acting in their capacity as a director.

Principle 3 Promote ethical and responsible decision making

Principle 4 Safeguard integrity in financial reporting

Principle 5 Make timely and balanced disclosure

Principle 6 Respect the rights of shareholders

Principle 7 Recognise and manage risk

Principle 8 Remunerate fairly and responsibly

Circadian’s corporate governance practices were in place throughout the year ended 30 June 2009 and were fully compliant with the Council’s best practice recommendations except for the recommendation regarding the establishment of a nomination committee. The reason for not establishing this committee is explained in the section of this report headed “Structure of the board”.

For further information on corporate governance policies adopted by Circadian Technologies Limited, refer to its website: www.circadian.com.au .

The responsibility for the operation and administration of the Company is delegated by the board to the CEO, who in turn may further delegate to senior executive management. The board ensures that the senior executive management team (which includes the CEO) is appropriately qualified and experienced to discharge their responsibilities and has in place procedures to assess the performance of the CEO and the senior executive management.

Whilst at all times the board retains full responsibility for guiding and monitoring the Company, in discharging its stewardship it makes use of committees. Specialist committees are able to focus on a particular responsibility and provide informed feedback to the board.

To this end, the board has established the following committees:

Audit (see Principle 4)
Remuneration (see Principle 8)
Product development review committee (see Other Committees)
Science (replaced by the product development review committee in August 2008) (see Other Committees)

The roles and responsibilities of these committees are discussed throughout this Corporate Governance Statement.

The board seeks to identify the expectations of the shareholders, as well as other regulatory and ethical expectations and obligations. In addition, the board is responsible for identifying areas of significant business risk and ensuring arrangements are in place to adequately manage those risks.

2009 annual report 25

Corporate Governance Statement (continued)

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Principle 1 – Lay solid foundations for management and oversight (continued)

Board functions and charter (continued)

The board is responsible for ensuring that management’s objectives and activities are aligned with the expectations and risks identified by the board. The board has a number of mechanisms in place to ensure this is achieved including:

board approval of a strategic plan designed to meet stakeholders’ needs and manage business risk;
ongoing development of the strategic plan and approving initiatives and strategies designed to ensure the continued growth and success of the entity; and
implementation of budgets by management and monitoring progress against budget – via the establishment and reporting of both financial and non-financial key performance indicators.

Due to the nature of the Company’s activities and the stage that it is at with respect to these activities, profitability is not a performance measure for short-term incentives (STI’s) although effective management of the Company’s resources in achieving value for shareholders is expected. Long-term incentives (LTI’s) are linked to share price appreciation and key performance indicators (KPI’s) for STI’s are linked to activities/milestones that are expected to create value for shareholders.

The performance of the managing director and management is monitored on an informal basis throughout the year with the objective of performing a formal evaluation once a year. The last remuneration committee at which a review of remuneration structure for the management was performed in May 2009. This review was in accordance with the aforementioned process. A review of performance against KPI’s occurred in August 2009 in accordance with the described policy. Further information on the remuneration committee can be found in the Remuneration Report section of the Directors’ Report.

Other functions reserved to the board include:

approval of the annual and half-yearly financial reports;
approving and monitoring the progress of major capital expenditure, capital management, and acquisitions and divestitures;
ensuring that any significant risks that arise are identified, assessed, appropriately managed and monitored; and
reporting to shareholders.

The separation of responsibilities between the board and management is clearly understood and respected.

Executive performance evaluation

The remuneration committee of the board of directors of the Company is responsible for determining and reviewing compensation arrangements for the executive and non-executive directors and other senior executive personnel. The remuneration committee assesses the appropriateness of the nature and amount of compensation of senior executives on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum shareholder benefit from the retention of a high quality board and executive team.

The non-executive directors are responsible for evaluating the performance of the managing director and of the other senior executives. The managing director also evaluates the performance of the other senior executives and other management (management). The performance evaluation of the management involves an assessment of the Company’s business performance, whether short-term operational targets and individual performance objectives are being achieved and whether long-term strategic objectives are being achieved. Specific and measurable qualitative and quantitative performance criteria are used.

The Board Charter and the Performance Evaluation Process Policy are available from Circadian’s website: www.circadian.com.au.

Principle 2 – Structure the board to add value

Structure of the board

The board as of 14 September 2009 consists of seven directors, one of whom is an executive (Robert Klupacs, CEO) and six of whom are non-executives, although for most of the period from 1 July 2009 to 14 September 2009 the board consisted of six directors. The skills, experience and expertise relevant to the position of director held by each director in office at the date of this report are included in the Directors’ Report under the section headed “Directors”. Directors of Circadian Technologies Limited are considered to be independent when they are independent of management and free from any business or other relationship that could materially interfere with the exercise of their independent judgement.

In the context of director independence, to be considered independent, a non-executive director may not have a direct or indirect material relationship with the Company. The board has determined that a material relationship is one which impairs or inhibits, or has the potential to impair or inhibit, a director’s exercise of judgement on behalf of the Company and its shareholders.

From a quantitative perspective, an item is considered to be quantitatively immaterial if it is equal to or less than 5% of the relevant base amount. It is considered to be material (unless there is qualitative evidence to the contrary) if it is equal to or greater than 10% of the relevant base amount.

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In accordance with the definition of independence above, and the materiality thresholds described, the following directors of Circadian Technologies Limited are considered to be independent (being the majority of the directors) at the date of this report:

Name	Position
D Fisher	Chairman, non-executive director
D Clarke	Non-executive director
T McMeckan	Non-executive director
E Malta	Non-executive director
C Montagner	Non-executive director
J Skipper	Non-executive director

It should be noted that Errol Malta was appointed at the conclusion of the Company's 20 August 2009 board meeting.

The term in office held by each director in office at the date of this report is as follows:

Name	Term in Offce
D Fisher	4 years
R Klupacs	1 year 6 months
D Clarke	4 years
T McMeckan	1 year 7 months
E Malta	25 days
C Montagner	1 year 2 months
J Skipper	1 year

To ensure the board is well equipped to discharge its responsibilities it has guidelines for the nomination and selection of directors and for the operation of the board. The existing size of the board and the frequency of board meetings are such that the board’s role in assisting in the appointment process can be undertaken in an efficient manner by the board itself, without the need for a separate nomination committee. The charter of the nomination committee has been incorporated into the Board Charter and as such the board of directors considers all matters that would be relevant for a nomination committee. For additional details please refer to the Company’s Board Charter on its website.

Director's Access to Independent Professional Advice

The board has procedures to allow directors, in the furtherance of their duties, to seek independent professional advice at the Company’s expense.

Board and committee performance

Board and committee performance is monitored on an informal basis throughout the year with the objective of annual formal performance evaluation (although this may occur every 12 to 20 months). Directors participated in an evaluation which was conducted in April 2009 of the board’s and committee’s performance against specific qualitative performance criteria, some of which are measurable. The product development review committee performance was not reviewed at the time because it had only been

in place for less than 12 months. The evaluation was performed with the use of questionnaires, self-evaluations and one-on-one interviews with directors and was designed to cover both the board and also its committees. This was performed in accordance with the Company’s Performance Evaluation Process policy (as contained on the Company’s website). The next evaluation is planned to be performed before the end of the 2010 financial year. The performance evaluation of the non-executive directors is aligned with their responsibilities under the Board Charter and includes areas such as: board structure, board role and responsibilities, strategy and planning, monitoring of Company performance and board culture and relationships (amongst each director and with management).

Appointment of Directors

To be considered for membership on the board, a candidate should meet the following criteria:

Be of proven integrity with a history of relevant achievements that reflect high standards.
Demonstrate intelligence, wisdom and thoughtfulness in decisionmaking that usually will be based on broad experience.
Be able and willing to commit the time and energy necessary to attend to the Company’s affairs including attending board and board committee meetings.
Be committed to building sound, long-term growth in the value of the Company.
Be able to objectively review and evaluate management’s performance and implementation of strategy.

It is the board’s policy to determine the terms and conditions relating to the appointment and retirement of non-executive directors on a case by case basis and in conformity with requirements of the ASX Listing Rules and the Corporations Act. As Circadian is not a large company, a separate nomination committee has not been created. Appointment and retirement of directors will be in accordance with the following:

The board will consider from time to time changes that the board believes to be desirable to the size of the board or any committee thereof.
Where a board vacancy exists (including a vacancy created by an increase in size of the board), the board will identify individuals believed to be qualified to become board members to stand for election as directors at the Annual General Meeting of shareholders. In nominating candidates, the board shall take into consideration the qualifications of the candidate and the characteristics of the candidate to ensure that directors are of the highest standard. These factors may include judgement, skill, diversity, experience with businesses and other organisations of comparable size, the interplay of the candidate's experience with the experience of other board members, and the extent to which the candidate would be a desirable addition to the board and any committees of the board. The board may consider candidates proposed by management, but is not required to do so.

2009 annual report

Corporate Governance Statement (continued)

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Principle 2 – Structure the board to add value (continued)

Appointment of Directors (continued)

Where a vacancy exists on any board committee, the board will appoint a director to that committee taking into consideration the factors set forth in the charter of the committee, if any, as well as any other factors it deems appropriate, including, without limitation, applicable legislative requirements, the consistency of the candidate's experience with the goals of the committee and the interplay of the candidate's experience with the experience of other committee members.

The board is responsible for ensuring that an effective induction process is in place for new directors appointed to the board as discussed above.

The Board Charter was reviewed and updated with minor modifications in September 2009 and can be found on Circadian's website: www.circadian.com.au.

Principle 3 – Promote ethical and responsible decision-making

Code of Conduct

The Circadian Code of Conduct as approved by the board sets out Circadian’s commitment and practices to successfully conduct our business in accordance with all applicable laws while demonstrating and promoting the highest ethical standards. It sets out the standards of conduct in employees' and directors' relationships with each other, with the employer and with all those with whom the directors and employees deal with in their work. The code provides a framework for decision-making and business behaviour which builds and maintains Circadian’s corporate integrity, reputation and identifies responsibilities for reporting and investigating breaches. The code applies to all employees and directors. The code of conduct was reviewed and updated in February 2009 and can be found on Circadian’s website: www.circadian.com.au.

Securities Trading Policy

The Company has in place a Securities Trading Policy which details the trading policy with respect to the buying and selling of shares by directors and relevant employees.

Under the Company’s Securities Trading Policy for the buying and selling of Company securities, an executive, director or other employee must not trade in any securities of the Company at any time when they are in possession of unpublished, price sensitive information in relation to those securities.

A Designated Officer should not deal in securities of Circadian without receiving clearance from an Approving Officer(s) who has ensured that there is no unpublished price sensitive information.

A Designated Officer means a director or person engaged in the management of the Group, whether as an employee or consultant.

An Approving Officer means:

(a) for a Designated Officer who is not a director, the chief executive officer;
(b) for a director (except the chairperson of the board), the chairperson of the board and the CEO; and
(c) for the chairperson of the board, the chairperson of the audit committee and the CEO.

Generally, a Designated Officer must not be given clearance to deal in any securities of Circadian during:

(a) any close period (that is for the period of one month before the publication of annual and half-yearly financial results);
(b) any period when there exists any matter which constitutes unpublished price sensitive information in relation to Circadian’s securities; or
(c) any period when the person responsible for the clearance otherwise has reason to believe that the proposed dealing is in breach of this policy.

As required by the ASX Listing Rules, the Company notifies the ASX of any transaction conducted by directors in the securities of the Company. The Securities Trading Policy was amended in September 2009, a copy of which is available on Circadian’s website: www.circadian.com.au.

Principle 4 – Safeguard integrity in financial reporting

Audit Committee

The audit committee operates under a charter approved by the board. It is the board’s responsibility to ensure that an effective control framework exists within the entity. This includes ensuring that there are internal controls to deal with both the effectiveness and efficiency of significant business processes. This includes the safeguarding of assets, the maintenance of proper accounting records and the reliability of financial information as well as nonfinancial considerations. The board has delegated the responsibility for the establishment and maintenance of a framework of internal control and ethical standards for the management of the consolidated entity to the audit committee.

The audit committee also provides the board with additional assurance regarding the reliability of financial information for inclusion in the financial statements. All members of the audit committee are independent non-executive directors. The members who served on the audit committee during the 2009 financial year were Mr James MacKenzie (until 31 July 2008), Ms Dominique Fisher, Mr Don Clarke and Ms Tina McMeckan.

The audit committee is also responsible for nomination of the external auditor and reviewing the adequacy of the scope and quality of the annual statutory audit and half-year statutory review. The Audit Committee Charter can be found on the Company’s website (www.circadian.com.au) and contains the procedures for the selection, appointment and rotation of external audit engagement partners.

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Qualifications of audit committee members

Mr James MacKenzie, who resigned from Circadian on 31 July 2008, was chairman of the audit committee. He is the chairman of Mirvac Group and the Victorian Transport Accident Commission and is a director of the Victorian WorkCover Authority. He has previously held the positions of managing director, Funds Management and Insurance at the ANZ Banking Group, chief executive officer of Norwich Union Australia and the Transport Accident Commission. A Chartered Accountant by profession, Mr MacKenzie was a partner of an international accounting firm now part of Deloitte.

Ms Dominique Fisher has extensive business experience in the corporate area including the commercialisation of new technologies. She is principal and executive director of EC Strategies Pty Ltd, which advises local and overseas companies on technology strategies and major commercial transactions and in March 2007 was appointed non-executive director of Pacific Brands Limited. She is a former director of Insurance Australia Group (IAG) and was a member of its Risk Management and Compliance Committee from 2000 to 2004.

Mr Don Clarke has been a partner with the law firm Minter Ellison since 1988, having joined that firm in 1980. He has broad commercial practice (involving predominantly ASX listed companies in the SME sector and larger private companies) and experience across a broad sector of industries. He is also a non-executive director of Metabolic Pharmaceuticals Limited (appointed April 2007) and Webjet Limited (appointed January 2008).

Ms Tina McMeckan joined the audit committee on 19 January 2008 and became chairman on 21 August 2008. Her specific skills are in the commercialisation of science and technology and the energy sector. Ms McMeckan, who has an MBA, is presently chairman of the Centre for Eye Research Australia and NanoVentures Australia Ltd, a director of the Vision Cooperative Research Centre, Spatial Information Systems Ltd and the Global Carbon Capture and Storage Institute, and is also a member of the National Board of Deacons law firm. She has been/is a member of audit/finance committees for MediHerb Holdings Limited, Nanotechnology Victoria Limited (Chair), Vision Cooperative Research Centre and the Centre for Eye Research Australia Limited (Chair). Ms McMeckan is a past member of the Funds Management Committee of the AusIndustry Research and Development Board and has held senior investment management positions with the Australian Industry Development Corporation and Amrad Corporation Ltd (acquired by CSL Limited) focusing on capital raisings for innovation-based ventures.

For details on the number of meetings of the audit committee held during the year and the attendees at those meetings, refer to the Directors’ Report under the section headed “Directors’ Meetings”.

Principle 5 – Make timely and balanced disclosure

The Circadian Continuous Disclosure Policy as approved by the board sets out the key obligations of the board and management to ensure compliance under the disclosure obligations under the ASX listing rules and the Corporations Act 2001 and ensures that the obligation of employees and directors with respect to the Continuous Disclosure Policy are clear.

The board has overall responsibility for supervision of the Company and must ensure that the Company meets its disclosure obligations. The board has appointed the company secretary as disclosure officer to ensure that continuous disclosure requirements of the ASX Listing Rules and the Corporations Act are adhered to.

The general rule, contained in the Listing Rules, requires the Company to immediately notify the ASX of any information concerning the Company which a reasonable person would expect to have a material effect on the price or value of securities of the Company. Although in certain circumstances, the applicable listing rules permit the Company not to disclose material information.

The Continuous Disclosure Policy is available on Circadian’s website: www.circadian.com.au.

Principle 6 – Respect the rights of shareholders

The Circadian Communications Policy as approved by the board is designed to describe the processes Circadian has in place to promote communication with its investors and encourage shareholder participation at AGM’s. The policy advocates communication with shareholders and other stakeholders in an open, regular and timely manner to ensure that all stakeholders have sufficient information to make informed decisions on the operations and results of the Company. The policy provides for the use of systems involving technologies that ensure a regular and timely release of information about the Company. Mechanisms employed include:

All information released to the Australian Stock Exchange (ASX) (including annual reports, half-yearly reports, and notices of general meetings and their associated explanatory material) is posted on Circadian’s website as soon as practicable following confirmation of receipt by the ASX.
Annual reports (if requested) and notices of general meetings with explanatory material are mailed to investors.
Circadian acknowledges the importance of its relationships with investors and analysts and from time to time provides briefings to them. A copy of any presentation material provided at briefings will be posted on Circadian’s website.

The Communications Policy is available on Circadian’s website: www.circadian.com.au.

2009 annual report 29

Corporate Governance Statement (continued)

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Principle 7 – Recognise and manage risk

Risk

The board determines the Company’s risk profile and is responsible for overseeing and approving risk management strategy and policies, internal compliance and internal control. This process is designed to manage the Company’s material business risks and report on whether those risks are being managed effectively.

Material business risks are those risks which are the most significant areas of uncertainty or exposure that could adversely impact on the achievement of company objectives.

Management, as part of their responsibility for the operations of the Company, are also responsible for ensuring that risks are identified in a prospective manner, controls implemented to mitigate those risks and appropriate review procedures established to ensure that the controls in place are operating effectively. If new material risks are identified or if controls over existing risks are not operating effectively, these should be reported to the board for consideration along with recommendations by management, covering new or existing controls and review processes, which would mitigate the risks.

The board oversees an annual assessment of the effectiveness of risk management and internal compliance and control. The responsibility for undertaking and assessing risk management and internal control effectiveness is delegated to management. At the Company’s strategy meeting held in April 2009, the board and management addressed and discussed key material business risks, the mitigation or management of those risks and their related effectiveness. Further, on a more detailed level, management is required by the board to assess risk management and associated internal compliance and control procedures and report back on the efficiency and effectiveness of risk management. Management has performed its annual assessment of the efficiency and effectiveness of risk management including associated internal compliance and control procedures. This is to be reported in written form to the board at its October/November 2009 board meeting.

The board and senior management continue to identify the general areas of risk, including:

economic outlook and share market activity;
changing government policy (Australian and overseas);
competitors' products/research and development programs;
market demand and market prices for therapeutics/diagnostics;
legal proceedings commenced against the Company (if any);
environmental regulations;
ethical issues relating to pharmaceutical research and development;
other government regulations including those specifically relating to the biotechnology and health industries;
occupational health and safety and equal opportunity law.

To this end, comprehensive practices are in place which are directed towards achieving the following objectives:

effectiveness and efficiency in the use of the Company’s resources;
compliance with applicable laws and regulations;
preparation of reliable published financial information.

CEO and CFO Certification

In accordance with section 295A of the Corporations Act, the chief executive officer and chief financial officer have provided a written statement to the board that:

their view provided on the Company’s financial report is founded on a sound system of risk management and internal compliance and control which, in all material respects, implements the financial policies adopted by the board; and
that the Company’s risk management and internal compliance and control systems are operating effectively in all material respects.

The Risk Management Policy is available on Circadian’s website: www.circadian.com.au.

Principle 8 – Remunerate fairly and responsibly

Performance

Policies and procedures in place with respect to monitoring the performance of the board are set out in the Directors’ Report under the section headed “Remuneration Report” as well as under “Principle 2 – Structure the board to add value” in this report. Also see details under “Remuneration Committee” below.

Remuneration Committee

It is the Company’s objective to provide maximum stakeholder benefit from the retention of a high quality board and executive team by remunerating directors and key executives fairly and appropriately with reference to relevant market conditions. To assist in achieving this objective the remuneration committee remunerates directors and executives having regard to their performance and the performance of the Company. The expected outcomes of the remuneration policies and practices are to enable the Company to motivate, retain and attract directors and executives who will create value for shareholders.

Details relating to policy for performance evaluation, policy for remuneration and the amount of remuneration (monetary and nonmonetary) paid to each director and to the non-director executives are set out in the Directors’ Report under the section headed “Remuneration Report”.

There is no scheme to provide retirement benefits, other than statutory superannuation, to non-executive directors.

At no time have any directors or management of the Company limited the risk of participating in unvested entitlements under an equity based remuneration scheme. No written policy relating thereto was formally in place during the year, however a policy to

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this effect was incorporated into the Securities Trading Policy and adopted by the board on 14 September 2009. This policy can be found on the Company’s website.

The members of the remuneration committee during the year were Mr Don Clarke, Mr Carlo Montagner, Dr John Stocker (until 14 November 2008) and Mr James MacKenzie (until 31 July 2008). Due to the retirement of Dr Stocker and Mr MacKenzie from the board and the remuneration committee during the year, Dr Errol Malta was appointed by the board on 20 August 2009 as a new member of the remuneration committee.

Details relating to performance evaluation are set out in the section of the Directors’ Report headed “Remuneration Report”. For details on the number of meetings of the remuneration committee held during the year and the attendees at those meetings, refer to the Directors’ Report under the section headed “Directors’ Meetings”.

The Remuneration Committee Charter can be found on Circadian’s website: www.circadian.com.au.

Other Committees

Science Committee (replaced by the product development review committee in August 2008)

The science committee’s role was to review proposed new projects and proposed extensions to existing projects in excess of a financial commitment level as determined by the committee as well as to consider any other matters delegated to it by the board. The committee was also to review at least annually the Company’s pipeline of research programs.

The members of this committee during the period (i.e. up until the replacement of this committee in August 2008) were Dr John Stocker (chairman), Mr Robert Klupacs, and Dr James Goding, Professor of Pathology, Monash University who was appointed to the committee as an independent consultant. Dr Goding is not a director or an employee of the Company.

The members of the committee and their relevant experience are as follows:

Dr Errol Malta, whose credentials include working with the largest biotech company in the US, Amgen Inc, for more than 10 years, is chairman of the committee. He served as Product Development Team Leader for eight of those years responsible for global drug development and commercialisation in the US, EU and Japan. Errol was recently appointed (on 20 August 2009) as a nonexecutive director of Circadian.

Dr George Morstyn, former Senior Vice-President and Head of Development at Amgen Inc, was a member of the executive committee and responsible for global preclinical and clinical development as well as regulatory affairs. Dr Morstyn trained in medical oncology at the National Cancer Institute in the US.

Dr Russell Howard is CEO of US Nasdaq listed Maxygen Inc, a company focussed on human therapeutics with several programs in protein pharmaceuticals. Dr Howard also served as the president and scientific director of Affymax Research Institute, an institute employing combinatorial chemistry and high throughput target screening to discover drug leads.

Mr Carlo Montagner, a non-executive director of Circadian, is President Oncology Pan Asia for Nasdaq listed Abraxis Bioscience Inc. Carlo has a wealth of experience in heading global oncology businesses for blockbuster chemotherapeutic products. He is former Executive Vice President & Global Head of Schering AG/Berlex Labs USA Oncology Business Unit.

Mr Ralph Smalling has held senior positions with Amgen Inc for over 23 years including in regulatory affairs. He has overseen the development of more than 40 antibody and recombinant protein therapies projects through various stages (preclinical to marketing).

Dr Richard Morgan has more than 25 years experience in pharmaceutical research and development including Head of Toxicology at GlaxoWellcome (now GlaxoSmithKline).

The combined skills of this committee provided a mix of relevant experience in the areas of scientific research, patents and commercial experience. There were no science committee meetings held during the relevant period.

Product Development Review Committee (established in June 2008)

The product development review committee’s role is to provide advice on and scrutinise the Company's research, drug development and commercialisation strategies.

The members of this committee hold or held senior positions with large pharmaceutical or biotechnology companies and they bring to the Company extensive experience in international drug development, toxicology, clinical development, oncology, therapeutic antibodies and commercialisation of products.

2009 annual report

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Circadian has a strong financial foundation and is committed to continued, prudent management of its cash resources.

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Annual Financial Report

Auditor’s Independence Declaration	34
Balance Sheet	35
Income Statement	36
Statement of Changes in Equity	37
Cash Flow Statement	39
Notes to the Financial Statements	40
Directors’ Declaration	81
Independent Auditor’s Report	82

2009 annual report

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Independent auditor’s report to the members of Circadian Technologies Limited

Report on the Financial Report We have audited the accompanying financial report of Circadian Technologies Limited, which comprises the balance sheet as at 30 June 2009, and the income statement, statement of changes in equity and cash flow statement for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year.

Directors’ Responsibility for the Financial Report

The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with the Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001 . This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 2, the directors also state that the financial report, comprising the financial statements and notes, complies with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Auditor’s Responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, we consider internal controls relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Independence

In conducting our audit we have met the independence requirements of the Corporations Act 2001 . We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the financial report. In addition to our audit of the financial report, we were engaged to undertake the services disclosed in the notes to the financial statements. The provision of these services has not impaired our independence.

Liability limited by a scheme approved under Professional Standards Legislation

circadian technologies limited

BALANCE SHEET

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	Consolidated Parent
Note	2009 $ 2008 $ 2009 $ 2008 $
ASSETS Current Assets Cash and cash equivalents 11 Receivables 12 Prepayments Total Current Assets Non-Current Assets Financial investments and subsidiaries 13 Investments in associates 14 Intercompany receivables 24 Deferred tax assets 9 Plant and equipment 15 Total Non-Current Assets TOTAL ASSETS LIABILITIES Current Liabilities Payables 16 Intercompany payables 24 Provisions 17 Total Current Liabilities Non-Current Liabilities Intercompany payables 24 Deferred tax liability 9 Provisions 18 Total Non-Current Liabilities TOTAL LIABILITIES NET ASSETS EQUITY Equity attributable to equity holders of the parent Contributed equity 19 Retained earnings 20 Reserves 20 Parent interests Minority interests 21 TOTAL EQUITY	38,836,560 46,216,626 31,767,522 33,267,324 474,387 536,923 695,125 337,500 113,016 323,330 73,978 41,234
	39,423,963 47,076,879 32,536,625 33,646,058
	333,541 3,916,107 32,145,141 29,491,803 1,301,784 2,361,158 - - - - - 175,398 153,281 418,738 20,629 415,959 66,592 79,715 60,457 70,269
	1,855,198 6,775,718 32,226,227 30,153,429
	41,279,161 53,852,597 64,762,852 63,799,487
	2,144,039 1,665,234 520,208 361,698 - - - 2,763,636 187,296 121,551 187,296 110,181
	2,331,335 1,786,785 707,504 3,235,515
	- - 3,284,979 - 153,379 648,660 38,486 84,190 21,228 9,739 21,228 9,739
	174,607 658,399 3,344,693 93,929
	2,505,942 2,445,184 4,052,197 3,329,444
	38,773,219 51,407,413 60,710,655 60,470,043
	38,374,094 33,167,977 38,374,094 33,167,977 3,967,224 13,883,872 20,337,565 25,547,101 (3,592,321) 373,621 1,998,996 1,754,965
	38,748,997 47,425,470 60,710,655 60,470,043 24,222 3,981,943 - -
	38,773,219 51,407,413 60,710,655 60,470,043

The above balance sheet should be read in conjunction with the accompanying notes.

2009 annual report

INCOME STATEMENT

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	Consolidated Parent
Note	2009 $ 2008 $ 2009 $ 2008 $
Finance revenue Investment income Dividends Other revenue Revenue 6 Other income 7 Research & development expenses 23 Patent expenses Intellectual property costs Administrative expenses 8(d) Occupancy expenses Impairment losses 8(a) Realised investment losses 8(b) Finance costs Impairment of investments in subsidiaries 8(c) Impairment of receivables from subsidiaries Share of net loss of associates 14(f) Net foreign exchange losses Other expenses (Loss)/proft before income tax Income tax expense 9 Net (loss)/proft for the year Attributable to: Minority interests Members of the parent 20 Earnings per share for loss attributable to the ordinary equity holders of the parent: 10 - basic and diluted loss per share	2,308,717 3,264,748 2,076,628 2,520,126 61,108 4,508,091 - - - - - 5,400,000 721,618 374,918 2,025,600 915,000
	3,091,443 8,147,757 4,102,228 8,835,126 - 151,552 - 258,596 (4,483,438) (3,419,266) - - (1,729,030) (1,838,058) - - (304,275) (113,533) - - (4,530,052) (3,495,095) (4,212,890) (2,860,751) (137,527) (130,600) (137,527) (130,600) (482,590) (46,645) (45,000) (40,000) (408,501) - - - - - (170,267) (324,976) - - (3,433,368) - - - (1,000,049) (1,487,797) (604,399) (372,981) - - (267,434) - (1,601) - (20,000) - (289,115) -
	(9,875,803) (1,116,869) (5,187,589) 4,249,598 (45,867) (1,169,250) (21,947) (99,533)
	(9,921,670) (2,286,119) (5,209,536) 4,150,065
	(5,022) (1,138,314) - - (9,916,648) (1,147,805) (5,209,536) 4,150,065
	Cents Cents (22.22) (2.86)

The above income statement should be read in conjunction with the accompanying notes.

circadian technologies limited

STATEMENT OF CHANGES IN EQUITY

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	Attributable to equity holders of the parent Minority interest Total equity
CONSOLIDATED Note	Issued capital $ Retained earnings $ Reserves $ Total $ $ $
At 1 July 2007 Net loss on non-current listed investments for the year 20(b) Realised gains on non-current listed investments transferred to the income statement 20(b) Net gain on new share issue by associate 14(c) Other equity reserves 14(c) Total income and expense for the year recognised directly in equity Loss for the year Total recognised income and expense for the year Cost of share-based payment 20(b) At 30 June 2008 At 1 July 2008 Net loss on non-current listed investments for the year 20(b) Realised loss on non-current listed investment transferred to the income statement 20(b) Unrealised impairment losses recognised in the income statement 20(b) Other equity reserves 14(c) Total income and expense for the year recognised directly in equity Loss for the year Total recognised income and expense for the year Cost of share-based payment 20(b) Acquisition of minority interests 21(b) At 30 June 2009	33,167,977 15,031,677 7,645,796 55,845,450 5,120,257 60,965,707 - - (4,122,130) (4,122,130) - (4,122,130) - - (3,459,191) (3,459,191) - (3,459,191) - - 144,849 144,849 - 144,849 - - 50,979 50,979 - 50,979
	- - (7,385,493) (7,385,493) - (7,385,493) - (1,147,805) - (1,147,805) (1,138,314) (2,286,119)
	- (1,147,805) (7,385,493) (8,533,298) (1,138,314) (9,671,612) - - 113,318 113,318 - 113,318
	33,167,977 13,883,872 373,621 47,425,470 3,981,943 51,407,413
	33,167,977 13,883,872 373,621 47,425,470 3,981,943 51,407,413 - - (2,900,091) (2,900,091) - (2,900,091) - - 281,718 281,718 - 281,718 - - 296,654 296,654 - 296,654 - - 45,436 45,436 - 45,436
	- - (2,276,283) (2,276,283) - (2,276,283) - (9,916,648) - (9,916,648) (5,022) (9,921,670)
	- (9,916,648) (2,276,283) (12,192,931) (5,022) (12,197,953) - - 244,031 244,031 - 244,031 5,206,117 - (1,933,690) 3,272,427 (3,952,699) (680,272)
	38,374,094 3,967,224 (3,592,321) 38,748,997 24,222 38,773,219

The above statement of changes in equity should be read in conjunction with the accompanying notes.

2009 annual report

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STATEMENT OF CHANGES IN EQUITY (continued)

	Total equity
PARENT Note	Issued capital $ Retained earnings $ Reserves $ Total $
At 1 July 2007 Proft for the year Total recognised income and expense for the year Cost of share-based payment 20(b) At 30 June 2008 At 1 July 2008 Loss for the year Total recognised income and expense for the year Cost of share-based payment 20(b) Issue of shares for acquisition of minority interests 19(a) At 30 June 2009	33,167,977 21,397,036 1,641,647 56,206,660 - 4,150,065 - 4,150,065
	- 4,150,065 - 4,150,065 - - 113,318 113,318
	33,167,977 25,547,101 1,754,965 60,470,043
	33,167,977 25,547,101 1,754,965 60,470,043 - (5,209,536) - (5,209,536)
	- (5,209,536) - (5,209,536) - - 244,031 244,031 5,206,117 - - 5,206,117
	38,374,094 20,337,565 1,998,996 60,710,655

The above statement of changes in equity should be read in conjunction with the accompanying notes.

circadian technologies limited

CASH FLOW STATEMENT

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	Consolidated Parent
Note	2009 $ 2008 $ 2009 $ 2008 $
CASH FLOWS FROM OPERATING ACTIVITIES: Proceeds from sale of investments Acquisition of fnancial investments Interest received Receipt of government grants (inclusive of GST) Royalty and licence income received Management fees received (inclusive of GST) Dividend income Other receipts (inclusive of GST) Payments to suppliers, employees and for research & development and intellectual property costs (inclusive of GST) Income tax received/(paid) Net cash fows from/(used in) operating activities 22(a) CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of minority interests in subsidiary Proceeds from sale of plant and equipment Purchase of plant and equipment Receipts on behalf of subsidiaries Payments on behalf of subsidiaries Repayment of loans from subsidiaries Loans to subsidiaries Loan to associate Net cash fows from/(used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Payment of unfranked dividends (i) Return of capital to shareholders (i) Net cash fows from/(used in) fnancing activities Net (decrease)/increase in cash and cash equivalents Net foreign exchange differences Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 11	680,353 5,479,759 - - - (650,000) - - 2,508,253 3,129,121 1,905,000 2,107,419 - 35,669 - - 686,968 557,668 - - - - 1,753,620 990,000 - - - 5,400,000 - 16,500 - 16,500 (10,484,961) (10,027,385) (4,117,750) (3,167,310) 20,232 (339,424) 20,232 (339,424)
	(6,589,155) (1,798,092) (438,898) 5,007,185
	(680,272) - (680,272) - - 3,086 - 3,086 (14,809) (32,261) (14,809) (23,230) - - 680,353 5,479,759 - - (306,176) (1,629,137) - - - (5,400,000) - - (695,000) (800,000) (45,000) (40,000) (45,000) (40,000)
	(740,081) (69,175) (1,060,904) (2,409,522)
	- (41,188) - (41,188) - (68,302) - (68,302)
	- (109,490) - (109,490)
	(7,329,236) (1,976,757) (1,499,802) 2,488,173 (50,830) - - - 46,216,626 48,193,383 33,267,324 30,779,151
	38,836,560 46,216,626 31,767,522 33,267,324

(i) Dividends and a return of capital to shareholders were declared during the financial year ended 30 June 2005. In April 2008, all unclaimed monies were paid over to the State Revenue Office. The prior year payments are to those shareholders who were not paid during the financial year ended 30 June 2005 due to their addresses being unknown at that time.

The above cash flow statement should be read in conjunction with the accompanying notes.

2009 annual report

NOTES TO THE FINANCIAL STATEMENTS

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1. Corporate Information

The financial report of Circadian Technologies Limited (the Company) for the year ended 30 June 2009 was authorised for issue in accordance with a resolution of the directors on 20 August 2009.

Circadian Technologies Limited (the parent) is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Stock Exchange.

The nature of the operations and principal activities of the Group are described in the Directors’ Report.

2. Summary of Significant Accounting Policies

Basis of preparation

(a) Compliance with IFRS
(b) New accounting standards and interpretations

Basis of Preparation

The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001 , Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The financial report has also been prepared on a historical cost basis, except that non-current receivables from subsidiaries and non-current payables to subsidiaries are carried at amortised cost, investments classified as available-for-sale are carried at fair value, and investments in associates have been equity accounted. These accounting policies have been consistently applied throughout the Group.

The financial report is presented in Australian dollars.

(a) Compliance with IFRS

The financial report complies with Australian Accounting Standards as issued by the Australian Accounting Standards Board and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.

(c) Basis of consolidation
(d) Cash and cash equivalents
(e) Current receivables
(f) Investments and other financial assets
(g) Impairment of financial assets
(h) Acquisition of minority interests – premium on acquisition
(i) Investments in subsidiaries
(j) Investments in associates
(k) Interest in a jointly controlled operation
(l) Plant and equipment
(m) Leases
(n) Impairment of non-financial assets other than goodwill
(o) Goodwill
(p) Intangible assets
(q) Intellectual property costs
(r) Research and development costs
(s) Payables
(t) Loans and borrowings
(u) Employee benefits
(v) Share-based payment transactions
(w) Contributed equity
(x) Revenue recognition
(y) Income tax
(z) Other taxes
(aa) Government grants
(ab) Earnings per share

circadian technologies limited

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(b) New accounting standards and interpretations

Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective have not been adopted by the Group for the annual reporting period ended 30 June 2009. These are outlined in the table below.

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Application Application
date of Impact on Group date for
Reference Title Summary standard * financial report Group
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Reference	Title	Summary	Application date of standard *	Impact on Group fnancial report	Application date for Group *

AASB Int. 17 and AASB 2008-13	Distributions of Non-cash Assets to Owners and consequential amendments to Australian Accounting Standards AASB 5 and AASB 110	The Interpretation outlines how an entity should measure distributions of assets, other than cash, as a dividend to its owners acting in their capacity as owners. This applies to transactions commonly referred to as spin-offs, split offs or demergers and in-specie distributions.	1 July 2009	This could impact the Group’s future treatment of non-cash distributions.	1 July 2009
AASB 8 and AASB 2007-3	Operating Segments and consequential amendments to other Australian Accounting Standards	New standard replacing AASB 114 Segment Reporting, which adopts a management reporting approach to segment reporting.	1 January 2009	AASB 8 is a disclosure standard so will have no direct impact on the amounts included in the Group’s fnancial statements. These amendments are not expected to have an impact on the Group.	1 July 2009
AASB 101 (Revised), AASB 2007-8 and AASB 2007-10	Presentation of Financial Statements and consequential amendments to other Australian Accounting Standards	Introduces a statement of comprehensive income which encompasses some of the components of the income statement but extends the statement to include other comprehensive income. Other revisions include impacts on the presentation of items in the statement of changes in equity, new presentation requirements for restatements or reclassifcations of items in the fnancial statements, changes in the presentation requirements for dividends and changes to the titles of the fnancial statements.	1 January 2009	The amendments are expected to only affect the presentation of the Group’s fnancial report and will not have a direct impact on the measurement and recognition of amounts under the current AASB 101. The Group has not determined at this stage whether to present the new statement of comprehensive income as a single or two statements.	1 July 2009
AASB 2008-1	Amendments to Australian Accounting Standard – Share- based Payments: Vesting Conditions and Cancellations	The amendments clarify the defnition of ‘vesting conditions’, introducing the term ‘non-vesting conditions’ for conditions other than vesting conditions as specifcally defned and prescribe the accounting treatment of an award that is effectively cancelled because a non-vesting condition is not satisfed.	1 January 2009	The Group does not have share-based payments with non-vesting conditions and as such, these amendments are not expected to have an impact on the Group’s fnancial report.	1 July 2009

2009 annual report

NOTES TO THE FINANCIAL STATEMENTS (continued)

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2. Summary of Significant Accounting Policies (continued)

(b) New accounting standards and interpretations (continued)

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Application Application
date of Impact on Group date for
Reference Title Summary standard * financial report Group
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Reference	Title	Summary	Application date of standard *	Impact on Group fnancial report	Application date for Group *

AASB 3 (revised) and AASB 2008-3	Business Combinations	The revised standard introduces a number of changes to the accounting for business combinations. This includes the requirement to expense business combination transaction costs and establishes a choice (for each business combination entered into) to measure a non-controlling interest (formerly a minority interest) in the acquiree either at its fair value or at its proportionate interest in the acquiree’s net assets. This choice will effectively result in recognising goodwill relating to 100% of the business (applying the fair value option) or recognising goodwill relating to the percentage interest acquired. The changes apply prospectively.	1 July 2009	These amendments are not expected to have an impact on the Group’s fnancial report.	1 July 2009
AASB 127 (revised) and AASB 2008-3	Consolidated and Separate Financial Statements	There are a number of changes arising from the revision to AASB 127 relating to changes in ownership interest in a subsidiary without loss of control, allocation of losses of a subsidiary and accounting for the loss of control of a subsidiary. Specifcally in relation to a change in the ownership interest of a subsidiary (that does not result in loss of control) – such a transaction will be accounted for as an equity transaction.	1 July 2009	If the Group changes its ownership interest in existing subsidiaries in the future, the change will be accounted for as an equity transaction. This will have no impact on goodwill, nor will it give rise to a gain or loss in the Group’s income statement.	1 July 2009
AASB 2008-5 and 2008-6	Amendments to Australian Accounting Standards arising from the Annual Improvements Project	The improvements project is an annual project that provides a mechanism for making non-urgent, but necessary, amendments to IFRSs. The IASB has separated the amendments into two parts: Part 1 deals with changes the IASB identifed resulting in accounting changes; Part II deals with either terminology or editorial amendments that the IASB believes will have minimal impact. The AASB issued these amendments in two separate amending standards; one dealing with the accounting changes effective from 1 January 2009 and the other dealing with amendments to AASB 5, which will be applicable from 1 July 2009.	1 January 2009/ 1 July 2009	These changes will have no material impact on the amounts included in the Group’s fnancial report, however may impact the presentation and disclosure within the fnancial report.	1 July 2009

circadian technologies limited

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Application Application
date of Impact on Group date for
Reference Title Summary standard * financial report Group
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Reference	Title	Summary	Application date of standard *	Impact on Group fnancial report	Application date for Group *

AASB 2008-7	Amendments to Australian Accounting Standards – Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate	The main amendments of relevance to Australian entities are those made to AASB 127 deleting the “cost method” and requiring all dividends from a subsidiary, jointly controlled entity or associate to be recognised in proft or loss in an entity’s separate fnancial statements (i.e. parent company accounts). The distinction between pre- and post-acquisition profts is no longer required. However, the payment of such dividends requires the entity to consider whether there is an indicator of impairment. AASB 127 has also been amended to effectively allow the cost of an investment in a subsidiary, in limited reorganisations, to be based on the previous carrying amount of the subsidiary (that is, share of equity) rather than its fair value.	1 January 2009	Recognising all dividends received from subsidiaries, jointly controlled entities and associates as income will likely give rise to greater income being recognised by the parent entity after adoption of these amendments. In addition, if the Group enters into any group reorganisation establishing new parent entities, an assessment will need to be made to determine if the reorganisation meets the conditions imposed to be effectively accounted for on a ‘carry-over basis’ rather than at fair value.	1 July 2009
AASB 2009-4	Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 2 and AASB 138 and AASB Interpretations 9 & 16]	The amendments to some Standards result in accounting changes for presentation, recognition or measurement purposes, while some amendments that relate to terminology and editorial changes are expected to have no or minimal effect on accounting. The main amendment of relevance to Australian entities is that made to IFRIC 16 which allows qualifying hedge instruments to be held by any entity or entities within the group, including the foreign operation itself, as long as the designation, documentation and effectiveness requirements in AASB 139 that relate to a net investment hedge are satisfed. More hedging relationships will be eligible for hedge accounting as a result of the amendment. These amendments arise from the issuance of the IASB’s_Improvements_ to IFRSs. The amendments pertaining to IFRS 5, 8, IAS 1,7, 17, 36 and 39 have been issued in Australia as AASB 2009-5.	1 July 2009	These amendments are not expected to have an impact on the Group’s fnancial report.	1 July 2009

2009 annual report

NOTES TO THE FINANCIAL STATEMENTS (continued)

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2. Summary of Significant Accounting Policies (continued)

(b) New accounting standards and interpretations (continued)

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Application Application
date of Impact on Group date for
Reference Title Summary standard * financial report Group
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Reference	Title	Summary	Application date of standard *	Impact on Group fnancial report	Application date for Group *

AASB 2009-7	Amendments to Australian Accounting Standards [AASB 5, 7, 107, 112, 136 & 139 and Interpretation 17]	These comprise editorial amendments and are expected to have no major impact on the requirements of the amended pronouncements.	1 July 2009	These amendments are not expected to have an impact on the Group’s fnancial report.	1 July 2009
Amendments to International Financial Reporting Standards	Amendments to IFRS 2	The amendments clarify the accounting for group cash-settled share-based payment transactions, in particular: • the scope of AASB 2; and • the interaction between IFRS 2 and other standards. An entity that receives goods or services in a share-based payment arrangement must account for those goods or services no matter which entity in the group settles the transaction, and no matter whether the transaction is settled in shares or cash. A “group” has the same meaning as in IAS 27_Consolidated and_ Separate Financial Statements, that is, it includes only a parent and its subsidiaries. The amendments also incorporate guidance previously included in IFRIC 8_Scope of IFRS 2_and IFRIC 11_IFRS 2 – Group and Treasury_ Share Transactions. As a result, IFRIC 8 and IFRIC 11 have been withdrawn.	1 January 2010	The Group currently does not have cash-settled share based transactions so these amendments are not expected to have an impact.	1 July 2010

designates the beginning of the applicable annual reporting period unless otherwise stated.

circadian technologies limited

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(c) Basis of consolidation

The consolidated financial statements comprise the financial statements of Circadian Technologies Limited and its subsidiaries (as outlined in note 24) as at 30 June each year (the Group). Interests in associates are equity accounted and are not part of the consolidated Group (see note (j) below).

Subsidiaries are all those entities over which the Group has the power to govern the financial and operating policies so as to obtain benefits over their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether a group controls another entity.

The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.

In preparing the consolidated financial statements, all intercompany balances and transactions, income and expenses and profit and losses resulting from intra-group transactions have been eliminated in full.

Subsidiaries are fully consolidated from the date on which control is obtained by the Group and cease to be consolidated from the date on which control is transferred out of the Group.

Minority interests represent the portion of net profit/loss after tax and net assets in CancerProbe Pty Ltd not attributable to the Group and are presented separately as an item in the income statement and within equity in the consolidated balance sheet. Also see note (h) below for acquisition of minority interests.

(d) Cash and cash equivalents – refer note 11

Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above.

(e) Current receivables – refer note 12

Receivables generally comprise bank interest receivable, receivable from an associated entity and GST credits receivable, and are recognised and carried at original invoice amount less an allowance for any uncollectible amounts.

Collectibility of receivables is reviewed on an ongoing basis. Debts that are known to be uncollectible are written off when identified. An allowance for doubtful debts is raised when there is objective evidence that the Group will not be able to collect the debt.

(f) Investments and other financial assets

– refer notes 13 and 24

Investments and financial assets are classified as either availablefor-sale investments, or loans and receivables, as appropriate, in accordance with AASB 139 Financial Instruments: Recognition and Measurement.

When financial assets are recognised initially, they are measured at fair value. The Group determines the classification of its financial assets after initial recognition and, when allowed and appropriate, re-evaluates this designation at each financial year-end.

Recognition and derecognition

Purchases and sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place are recognised on the trade date i.e. the date that the Group commits to purchase the asset. Financial assets are derecognised when the right to receive cash flows from the financial assets has expired or been transferred.

(i) Available-for-sale investments – note 13

Available-for-sale investments comprise the Group’s non-current investments in listed companies. After initial recognition, availablefor-sale investments are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is sold, collected or otherwise disposed of, or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is recognised in the income statement.

The fair values of available-for-sale investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date.

(ii) Loans and receivables – note 24

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method and have been calculated by discounting the principal amounts over the relevant term using the relevant LIBOR rate which matches that term as closely as possible. Gains and losses are recognised in the income statement when the loans and receivables are derecognised or impaired.

Non-current receivables comprise loans receivable from subsidiaries which are not interest bearing. The parent has agreed that the loans with its subsidiaries will not be recalled for a period of 12 months from the date the directors adopt the relevant annual financial statements of the Group, parent and subsidiaries.

(g) Impairment of financial assets

The Group assesses at each balance sheet date whether a financial asset or group of financial assets is impaired.

(i) Available-for-sale investments – note 13

If there is objective evidence (i.e. significant or prolonged decline in quoted market bid prices) that an available-for-sale investment is impaired, an amount comprising the difference between its cost and its current fair value, less any impairment loss previously recognised in the income statement, is transferred from equity to the income statement. Reversals of impairment losses for equity instruments classified as available-for-sale are not recognised in profit.

2009 annual report

NOTES TO THE FINANCIAL STATEMENTS (continued)

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2. Summary of Significant Accounting Policies (continued)

(g) Impairment of financial assets (continued)

(ii) Financial assets carried at amortised cost

Loans receivable from subsidiaries in the parent’s accounts are financial assets carried at amortised cost. If there is objective evidence that an impairment loss on intercompany loans receivable carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through use of an allowance account. The amount of the loss is recognised in the income statement.

The Group firstly assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and secondly individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.

If, in a subsequent period, the amount of the cumulative impairment loss decreases and the decreases can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the income statement, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date.

(h) Acquisition of minority interests – premium on acquisition – refer note 21

The premium paid on the acquisition of the minority interests is measured as the excess of the consideration paid over the Group’s interest in the net assets acquired from the acquiree on the date of acquisition. The premium is treated as an equity transaction and recognised in the “Equity reserve attributable to parent” account.

(i) Investments in subsidiaries – refer note 13

(j) Investments in associates – refer note 14

The Group’s investments in its associates are accounted for using the equity method of accounting in the consolidated financial statements. The associates are entities in which the Group has significant influence and which is neither a subsidiary nor a joint venture.

Under the equity method, the investments in the associates are carried in the consolidated balance sheet at cost plus postacquisition changes in the Group’s share of net assets of the associates. Goodwill relating to an associate is included in the carrying amount of the investment. After application of the equity method, the Group determines whether it is necessary to recognise any additional impairment loss with respect to the Group’s net investment in the associates. Impairment loss arises where the carrying value of the investment exceeds its recoverable amount. Where the investment in associate is a listed investment, the recoverable amount is the quoted market bid price for that asset at balance date. The amount of impairment loss is the difference between the recoverable amount and carrying value.

Where the investment is an unquoted investment, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the current market rate of return for a similar financial asset. Any subsequent reversal of an impairment loss is recognised in the income statement.

The Group’s share of its associates’ post-acquisition profits or losses is recognised in the income statement, and its share of post-acquisition movements in equity and reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from associates are recognised in the relevant parent entity’s income statement, while in the consolidated financial statements they reduce the carrying amount of the investment.

When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any unsecured long-term receivables and loans, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

The reporting dates of the associates and the Group are identical and the associates’ accounting policies conform to those used by the Group for like transactions and events in similar circumstances.

Investments in subsidiaries are carried at cost. If there is objective evidence that an impairment loss has been incurred on investments in subsidiaries, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the current market rate of return for a similar financial asset. Any subsequent reversal of an impairment loss is recognised in the income statement.

circadian technologies limited

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(k) Interest in a jointly controlled operation – refer note 23

The Group enters into agreements with universities and research institutes for pharmaceutical research and development projects which are considered “joint venture” arrangements. A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity (normally pharmaceutical research) that is subject to joint control. A jointly controlled operation involves use of assets and other resources of the venturers rather than establishment of a separate entity. The Group recognises its interests in jointly controlled operations by recognising the assets that it controls and the liabilities that it incurs. The Group also recognises the expenses that it incurs and its share of the income that it earns from the sale of goods or services by the jointly controlled operation.

(l) Plant and equipment – refer note 15

Plant and equipment are measured at cost and are depreciated on a straight-line basis over their useful economic lives as follows:

Equipment and furniture – 3 to 10 years
Leasehold improvements – 8 years

The assets’ residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each financial year end.

Derecognition

An item of plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal.

An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows that are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are tested for possible reversal of the impairment whenever events or changes in circumstances indicate that the impairment may have reversed.

(o) Goodwill

Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities.

Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

Impairment is determined by assessing whether the subsidiary carrying on research and development activities has met its research and development milestones and also by looking at other qualitative aspects of the research and development project.

Goodwill is measured at cost less any accumulated impairment losses. Impairment losses recognised for the goodwill are not subsequently reversed.

(p) Intangible assets

(m) Leases – refer note 8

The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.

Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term. Operating lease incentives are recognised in the income statement as an integral part of the total lease expense.

The Group held no finance leases during the 2009 and 2008 financial years.

(n) Impairment of non-financial assets other than goodwill – refer note 14

Non-financial assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. For the policy relating to impairment re investments in associates, see note 2(j) above.

Circadian Technologies Limited conducts an annual internal review of asset values, which is used as a source of information to assess for any indicators of impairment. External factors, such as changes in technology and economic conditions, are also monitored to assess for indicators of impairment. If any indication of impairment exists, an estimate of the asset’s recoverable amount is calculated.

Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is charged against profits in the year in which the expenditure is incurred.

(q) Intellectual property costs

Amounts incurred for rights to or acquisition of intellectual property are expensed in the year in which they are incurred to the extent that such intellectual property is used for research and development activities.

(r) Research and development costs – refer note 23

Research costs are expensed as incurred.

An intangible asset arising from the development expenditure on an internal project will only be recognised when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the development and the ability to measure reliably the expenditure attributable to the intangible asset during its development.

2009 annual report

NOTES TO THE FINANCIAL STATEMENTS (continued)

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2. Summary of Significant Accounting Policies (continued)

(r) Research and development costs (continued)

Following the initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Any expenditure so capitalised is amortised over the period of expected benefits from the related project.

The carrying value of an intangible asset arising from development expenditure is tested for impairment annually when the asset is not yet available for use, or more frequently when an indication of impairment arises during the reporting period.

(ii) Long service leave

The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity that match, as closely as possible, the estimated future cash outflows.

(v) Share-based payment transactions – refer note 26

(s) Payables – refer note 16

Payables are carried at amortised cost and due to their short term nature they are not discounted. They represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within 30 days of recognition.

(t) Loans and borrowings – refer note 24

All loans and borrowings are initially recognised at cost, being the fair value of the consideration received net of issue costs associated with the borrowing.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement.

Parent’s current payables include loans from subsidiaries which are not interest bearing. The relevant subsidiaries have agreed that the loans to the parent will not be recalled for a period of 12 months from the date the directors adopt the annual financial statements of the parent. Loans payable to subsidiaries in the parent’s accounts are financial liabilities carried at amortised cost.

Loans are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

Borrowing costs

Borrowing costs are recognised as an expense when incurred.

(u) Employee benefits – refer notes 8, 17 and 18

(i) Wages, salaries, annual leave and sick leave

Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months of the reporting date are recognised in current provisions in respect of employees’ services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Expenses for non-accumulating sick leave are recognised when the leave is taken and are measured at the rate paid or payable.

Equity settled transactions:

The Group provides benefits to employees (including key management personnel) of the Group in the form of share based payments, whereby employees render services in exchange for shares or rights over shares (equity-settled transactions).

There is currently an Employee Share Option Plan in place which provides these benefits to employees.

The cost of these equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined by an external valuer. A binomial model, the Monte Carlo simulation or Hull model, as appropriate, are used for options issued.

In valuing transactions settled by way of issue of options, no account is taken of any performance (or vesting) conditions, other than conditions linked to the price of the shares of Circadian Technologies Limited (market conditions).

The cost of the equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled (the vesting period), ending on the date on which the relevant employees become fully entitled to the award (the vesting date).

At each subsequent report date until vesting, the cumulative charge to the income statement is the product of:

(i) the grant date fair value of the award;
(ii) the current best estimate of the number of awards that will vest, taking into account such factors as the likelihood of employee turnover during the vesting period; and
(iii) the expired portion of the vesting period.

The charge to the income statement for the period is the cumulative amount as calculated above less the amounts already charged in previous periods. There is a corresponding credit to equity.

Until an award has vested, any amounts recorded are contingent and will be adjusted if more or fewer awards vest than were originally anticipated to do so. Any award subject to a market condition is considered to vest irrespective of whether or not that market condition is fulfilled, provided that all other conditions are met.

circadian technologies limited

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Where the terms of the equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. An additional expense is recognised for any modification that increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee, as measured at the date of modification.

The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings per share. There is however no dilutive effect when there is a loss per share.

(w) Contributed equity – refer note 19

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

(x) Revenue recognition – refer note 6

Revenue is recognised and measured at the fair value of the consideration received or receivable to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised.

(i) Interest revenue

Almost all of the Group’s interest revenue is earned on short-term bank deposits and as such interest revenue is recognised when the Group’s right to receive the payment is established.

(ii) Royalty fee and licence fee revenue

Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets (or credits) and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax credits and unused tax losses can be utilised, except:

when the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or
when the deductible temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Royalty fee and licence fee revenue is recognised when earned.

(iii) Dividends

Revenue is recognised when the Group’s right to receive the payment is established.

(y) Income tax – refer note 9

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the current period’s taxable income. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.

Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognised for all taxable temporary differences except:

when the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or
when the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Income taxes relating to items recognised directly in equity are recognised in equity and not in profit or loss.

Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority.

Tax consolidation legislation

Circadian Technologies Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation as of 1 July 2003.

The head entity, Circadian Technologies Limited, and the controlled entities in the tax consolidated group account for their own current and deferred tax amounts. Members of the tax consolidated group have adopted the “separate taxpayer within group” method to allocate the current and deferred tax amounts to each entity within the group. This method requires adjustments for transactions and events occurring within the tax consolidated group that do not give rise to a tax consequence for the group or that have a different tax consequence at the level of the group.

2009 annual report

NOTES TO THE FINANCIAL STATEMENTS (continued)

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2. Summary of Significant Accounting Policies (continued)

(y) Income tax (continued)

In addition to its own current and deferred tax amounts, Circadian Technologies Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group.

The head entity, which is the parent entity, in assuming the net unused tax losses and unused relevant tax credits, has recognised reductions to investments in subsidiaries and where the amount of tax losses assumed is in excess of the carrying value of the investment, the parent has recognised the difference as a distribution from subsidiary in the income statement.

(z) Other taxes

Revenues, expenses, assets and liabilities are recognised net of the amount of GST except:

when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and
receivables and payables are stated with the amount of GST included.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet.

Cash flows are included in the Cash Flow Statement on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority is classified as part of operating cash flows.

Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.

(aa) Government grants

Government grants are recognised when there is reasonable assurance that the grant will be received and all attaching conditions will be complied with.

When the grant relates to an expense item, it is recognised as income over the periods necessary to match the grant on a systematic basis to the costs that it is intended to compensate. They are not credited directly to shareholders equity. All grants during the year ended 30 June 2008 related to expense items. There were no grants in 2009.

(ab) Earnings per share – refer note 10

Diluted earnings per share is calculated as net profit/(loss) divided by the weighted average number of ordinary shares and dilutive potential ordinary shares. The share options are not dilutive as their respective exercise prices are in excess of the share price at year end. Whilst the deferred shares would generally be included in the calculation as their conditions of issuance are known to be satisfied, due to there being a loss for the current year, these instruments would be antidilutive (decrease the loss per share). Accordingly they have been excluded from the calculation, resulting in basic earnings/(loss) per share being the same as the diluted value per share.

3. Financial Risk Management Objectives and Policies

The Group’s principal financial assets comprise cash, receivables, short-term deposits and financial investments. The parent’s principal financial assets comprise cash, short-term deposits and intercompany receivables from wholly-owned subsidiaries.

The Group (including the parent) manages its exposure to key financial risks, including interest rate and currency risk in accordance with the Group’s financial risk management practices. The objective is to support the delivery of the Group’s financial targets whilst protecting future financial security.

The Group’s other various financial assets and liabilities, such as receivables and payables, arise directly from its operations. The main risks arising from the Group’s financial assets and liabilities are interest rate risk, foreign currency risk, equity securities price risk and liquidity risk.

The Group uses different methods to measure and manage different types of risks to which it is exposed. These include monitoring levels of exposure to interest rate and foreign exchange risk and assessments of market forecasts for interest rates and foreign exchange rates. Liquidity risk is monitored through future rolling cash flow forecasts.

The Board reviews and agrees policies for managing each of these risks as summarised below.

Risk Exposures and Responses

The Group has investigated the main financial risk areas which could impact on its financial assets and determined the impact on post tax (losses) or profits for a range of sensitivities. These can be seen in the post tax (loss)/profit impact for each risk area.

For each risk area, the equity impact relates solely to reserve movements and excludes retained earnings movements as the impact of these can be seen within the post tax (loss)/profit impact.

Interest rate risk

The Group’s (including the parent) exposure to market interest rates relates primarily to the short-term deposits. The deposits are held with one of Australia’s largest banks.

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The objective of managing interest rate risk is to minimise the Group’s exposure to fluctuations in interest rates that might impact its interest revenue and cash flow. To manage interest rate risk, the Group invests the majority of its cash in short-term deposits for varying periods of between 30 days and 90 days, depending on the short and long-term cash requirements of the Group which is determined based on the Group’s cash flow forecast. This consideration also takes into account the costs associated with breaking a term deposit should early access to cash and cash equivalents be required. Cash is not locked into long-term deposits at fixed rates so as to mitigate the risk of earning interest below the current floating rate.

The Group does not have any borrowings.

The following sensitivity analysis (an annual effect) is based on the interest rate risk exposures in existence at the balance sheet date.

At 30 June 2009, given that the interest risk associated with the Group and parent relates solely to interest income (the Group has no third party borrowings), if interest rates moved, with all variables held constant, post tax (loss)/profit and equity would have been affected as illustrated in the table below:

illustrated in the table below:
	Post tax (loss)/proft			Equity
Judgements of reasonably possible movements:	Impact			Impact
	2009	2008	2009		2008
	$	$	$		$
Consolidated
+0.50% (50 basis points)	192,743	161,758		-		-
- 0.75% (75 basis points)	(289,114)	(242,637)		-		-
Parent
+0.50% (50 basis points)	158,838	116,436		-		-
- 0.75% (75 basis points)	(238,256)	(174,653)		-		-

Given the amount of unrecognised tax losses in existence, the post tax figures include an offset of these tax losses (bringing the tax effect to nil) for the year ended 30 June 2009. The comparative figures reflect full taxes. Before taking into account the offset of these tax losses, the 2009 impact on loss was in fact lower in the current year compared to the prior year. This is due to the lower cash balance at 30 June 2009 compared to 30 June 2008.

Significant assumptions used in the interest rate sensitivity analysis include:

The net exposure at balance date is representative of what the Group was and is expecting to be exposed to in the next twelve months from balance date.

Price risk

The Group’s investment in listed shares is exposed to equity securities price risk and as such their fair values are exposed to fluctuations as a result of changes in market prices.

Equity price risk is the risk that the fair value of equities will decrease as a result of share price movements. The Group’s equity investments are publicly traded on the ASX and are designated and accounted for as “available-for-sale” financial assets (except for those which are recognised as associates).

The investments in listed shares are not held for short-term trading. Their values are reviewed regularly by management and the board. The strategy for realising any part of these investments is determined based on the liquidity of the respective stocks, potential off-market acquirers and likely developments in their values based on publicly available information.

At 30 June 2009, had the share price moved with all other variables held constant, post tax (loss)/profit and equity would have been affected as illustrated in the table below:

	Impact on loss	Impact on equity	Impact on loss	Impact on equity
Judgements of reasonably possible movements:	after tax	after tax	after tax	after tax
	2009	2009	2008	2008
	$	$	$	$
Change in variables
10% increase in listed share price	33,354	-	-	274,128
10% decrease in listed share price	(33,354)	-	-	(274,128)

2009 annual report

NOTES TO THE FINANCIAL STATEMENTS (continued)

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3. Financial Risk Management Objectives and Policies (continued)

Risk Exposures and Responses (continued)

Investments in listed entities have decreased during the current year due to the decrease in the market value of the investments as well as the disposal of the Group’s holding in Avexa Limited during the year – see note 8(b) for further details regarding the sale of these shares.

In the current year there was an impairment loss on a listed investment which was recognised in the income statement (see note 8(a)). In the prior year, there was a gain on the listed investments which was recognised within equity in the unrealised gains reserve (see note 20(b)(iv)).

The parent has no equity price risk.

Foreign currency risk

During the year, the Group’s exposure to foreign currency risk was minimal. As a result of services predominantly provided by non-related entities in the United States and Europe, part of the Group’s payables are affected by movements in the US$/A$ exchange rate and the Euro/A$ exchange rate.

The Group does not enter into any hedging transactions.

At 30 June 2009, the Group had the following exposure to the US$ foreign currency:

	Consolidated Parent
	2009 $ 2008 $ 2009 $ 2008 $
Financial Assets Cash Receivables Financial Liabilities Payables Net exposure	288,028 - - - 74,303 36,516 - - (641,652) (670,235) - -
	(279,321) (633,719) - -

The following sensitivity is based on the foreign currency risk exposures in existence at the balance sheet date.

At 30 June 2009, had the Australian dollar moved with all other variables held constant, post tax (loss)/profit and equity would have been affected as illustrated in the table below:

	Post tax loss				Equity
Judgements of reasonably possible movements:	Impact				impact
	2009	2008	2009			2008
	$	$	$			$
Consolidated
AUD/USD +10%	25,393	40,328		-			-
AUD/USD – 5%	(14,701)	(23,348)		-			-

The reasonably possible movements at 30 June 2008 are higher than at 30 June 2009 due to the higher net exposure to the US dollar as at 30 June 2008.

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At 30 June 2009, the Group had the following exposure to the Euro foreign currency:

	Consolidated Parent
	2009 $ 2008 $ 2009 $ 2008 $
Financial Assets Receivables Financial Liabilities Payables Net exposure	81,136 85,540 - - (224,057) (70,572) - -
	(142,921) 14,968 - -

The following sensitivity is based on the foreign currency risk exposures in existence at the balance sheet date.

At 30 June 2009, had the Australian dollar moved with all other variables held constant, post tax (loss)/profit and equity would have been affected as illustrated in the table below:

	Post tax loss			Equity
Judgements of reasonably possible movements:	Impact			Impact
	2009	2008	2009		2008
	$	$	$		$
Consolidated
AUD/Euro +10%	12,993	(953)		-		-
AUD/Euro – 5%	(7,522)	551		-		-

The reasonably possible movements at 30 June 2009 are higher than at 30 June 2008 due to the higher net exposure to the Euro.

Significant assumptions used in the foreign currency exposure sensitivity analysis include:

The reasonably possible movement of 10% was calculated by taking the USD and EUR spot rates as at balance date, moving these by 10% and then re-converting the USD and EUR into AUD with the “new spot-rate”. This methodology reflects the translation methodology undertaken by the Group.
The net exposure at balance date is representative of what the Group was and is expecting to be exposed to in the next twelve months from balance date.

Management believe the balance date risk exposures are representative of the risk exposure inherent in the financial instruments.

The parent has no foreign currency risk.

Credit risk

Credit risk is associated with those financial assets of the Group which comprise cash and cash equivalents and listed investments. The Group’s exposure to credit risk arises from default of the counter party, with a maximum exposure equal to the carrying amount of these investments. Credit risk is considered minimal as the Group transacts with a reputable recognised third party (the Commonwealth Bank of Australia). Due to this, there is no requirement for collateral. The parent has intercompany receivables from its wholly-owned subsidiaries which are considered to be minimal credit risk.

Liquidity risk

Liquidity risk arises from the financial liabilities of the Group and the Group’s subsequent ability to meet their obligations to repay their financial liabilities as and when they fall due. The Group has minimal liquidity risk because of the high balances of cash and cash equivalents.

The Group’s objective is to maintain an appropriate cash asset balance to fund its operations. The Group has minimal risk.

Fair value

The methods for estimating fair value are outlined in the relevant notes to the financial statements.

2009 annual report

NOTES TO THE FINANCIAL STATEMENTS (continued)

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4. Significant Accounting Judgements, Estimates and Assumptions

In applying the Group’s accounting policies, management continually evaluates judgements, estimates and assumptions based on experience and other factors, including expectations of future events that may have an impact on the Group. All judgements, estimates and assumptions made are believed to be reasonable based on the most current set of circumstances available to management. Actual results may differ from the judgements, estimates and assumptions. Significant judgements, estimates and assumptions made by management in the preparation of these financial statements are outlined below:

(i) Significant accounting judgements

Capitalised development costs

Development costs are only capitalised by the Group when it can be demonstrated that the technical feasibility of completing the intangible asset is valid so that the asset will be available for use or sale.

No development costs were capitalised during the current year.

Impairment of available-for-sale assets

The Group holds available-for-sale financial assets and follows the requirements of AASB 139 Financial Instruments: Recognition and Measurement in determining when an available-for-sale asset is impaired. For the year ended 30 June 2009, the Group deemed it appropriate to recognise an impairment in the income statement as it was unknown when recovery in the share price of the availablefor-sale asset may occur.

Taxation

The Group’s accounting policy for taxation requires management’s judgements as to the types of arrangements considered to be a tax on income in contrast to an operating cost. Judgement is also required in assessing whether deferred tax assets and certain deferred tax liabilities are recognised on the balance sheet. Deferred tax assets, including those arising from unrecouped tax losses, capital losses and temporary differences, are recognised only where it is considered more likely than not that they will be recovered, which is dependent on the generation of sufficient future taxation profits.

(ii) Significant accounting estimates and assumptions

Valuation of investments

The Group has classified investments in listed securities (other than investments in associates) as ‘available-for-sale’ investments and movements in fair value are recognised directly in equity. The fair value of listed shares has been determined by reference to published price quotations in an active market.

Share-based payment transactions

The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by an external valuer using the models and assumptions as described in note 26. The accounting estimates and assumptions relating to equity settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact expenses and equity.

5. Segment Information

The consolidated entity operates predominantly in one industry and one geographical segment, those being the medical technology and healthcare industry and Australia respectively.

The Group is a biologics drug developer building on its significant intellectual property portfolio around Vascular Endothelial Growth Factor (VEGF) C and D (angiogenic molecules). The Group is focussed primarily on developing biological therapeutics for cancer and other serious diseases.

The objective is to generate value by undertaking pre-clinical and early human clinical development and partnering with pharmaceutical companies the further development of major therapeutic indications while retaining rights to selected indications.

Assumptions about the generation of future taxable profits depend on management’s estimates of future cash flows. These depend on estimates of future operating costs, capital expenditure and the possible timing of realising capital gains taxes/losses. Judgements are also required about the application of income tax legislation. These judgements and assumptions are subject to risk and uncertainty, hence there is a possibility that changes in circumstances will alter expectations, which may impact the amount of deferred tax assets and deferred tax liabilities recognised on the balance sheet and the amount of other tax losses and temporary differences not yet recognised. In such circumstances, some or all of the carrying amounts of recognised deferred tax assets and liabilities may require adjustment, resulting in a corresponding credit or charge to the income statement.

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	Consolidated Parent
	2009 $ 2008 $ 2009 $ 2008 $
6. Revenue (a) Finance Revenue Interest from: – Bank – Related party – associated company – Related party – wholly owned subsidiaries – Other unrelated persons (b) Investment Income Net gain on sale of investments (i) (c) Dividends Unfranked – wholly owned subsidiaries (d) Other Revenue Management fee (note 24(b)(iii)) Royalty and licence fees Other revenue items Total Revenue	2,276,337 3,236,619 1,709,540 2,213,563 30,858 28,079 30,858 28,079 - - 334,738 278,484 1,522 50 1,492 -
	2,308,717 3,264,748 2,076,628 2,520,126 61,108 4,508,091 - - - - - 5,400,000 - - 2,025,600 900,000 721,618 359,918 - - - 15,000 - 15,000
	721,618 374,918 2,025,600 915,000
	3,091,443 8,147,757 4,102,228 8,835,126

(i) The net gain on sale of investments of $61,108 relates to the sale in April 2009 of 3,031,457 share rights in Avexa Limited which were received via a renounceable rights issue as announced by Avexa Limited on 25 March 2009.

In the prior year, the net gain on sale of investments of $4,508,091 comprised the following:

Investment in Avexa Limited:

*Investment in Avexa Limited:*
Net proceeds from sale of shares Original cost of shares sold Gain on sale of shares Recovery of impairment losses recognised prior to 1.7.05 Total	- 3,743,581 - - - (2,879,878) - -
	- 863,703 - - - 1,925,778 - -
	- 2,789,481 - -

The sale related to 6,580,000 ordinary shares in Avexa Limited, sold during the period from 13 November 2007 to 12 June 2008. The Group retained 7,087,914 shares in Avexa after the above sales. These shares were subsequently sold in the 2009 financial year resulting in a realised loss (see note 8(b) below).

Total impairment losses of $4,411,119 at 30 June 2005 relating to 19,132,292 Avexa shares were recognised through profit or loss. All the shares sold during the 2008 financial year were from the parcel which recognised the impairment loss in the 30 June 2005 year. As such, the recovery of impairment losses of $1,925,778 relates to this parcel of shares.

Investment in Metabolic Pharmaceuticals Ltd:

Net proceeds from sale of shares Cost of shares sold Net gain on sale of shares	- 1,728,610 - - - (10,000) - -
	- 1,718,610 - -

The sale relates to the remaining holding in Metabolic Pharmaceuticals Limited of 36,012,701 ordinary shares. The shares were sold on 12 May 2008.

2009 annual report

NOTES TO THE FINANCIAL STATEMENTS (continued)

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	Consolidated Parent
	2009 $ 2008 $ 2009 $ 2008 $
7. Other Income Distributions from subsidiaries (note 9(f)) Government grant income Net foreign exchange gains 8. Expenses (a) Impairment losses Loan to associate (note 14(b)) Listed fnancial investments (i) Other listed fnancial asset	- - - 258,596 - 6,020 - - - 145,532 - -
	- 151,552 - 258,596
	45,000 40,000 45,000 40,000 437,590 - - - - 6,645 - -
	482,590 46,645 45,000 40,000

(i) The market value of the Group’s interest in Optiscan Imaging Limited has fallen below its acquisition cost and as such the board and management have deemed it appropriate to recognise the total unrealised loss on this investment of $437,590 in the income statement as impairment losses, as a significant decline in the fair value of an investment in an equity instrument below its cost is seen as objective evidence of impairment.

The impairment loss is a result of Optiscan’s share price decreasing to 4.1 cents at 30 June 2009, which is below the average cost price of 9.5 cents per share. The amount of $437,590 represents the market value of the shares at 30 June 2009 of $333,541 less the cost price of the investment of $771,131 (also see note 13).

(b) Realised investment losses

Investment in Avexa Limited:

*Investment in Avexa Limited:*
Net proceeds from sale of shares Original cost of shares sold Loss on sale of shares Recovery of impairment losses recognised prior to 1.7.05 Total	619,245 - - - (3,102,176) - - -
	(2,482,931) - - - 2,074,430 - - -
	(408,501) - - -

The Group sold its remaining holding of 7,087,914 shares in Avexa Limited during the current year. Also see note 6(b) above for the gain on the sale of Avexa shares in the prior year.

Total impairment losses of $2,074,430 relating to these shares (impairment recognised in 2005) were recovered in the current year as a consequence of this sale. Refer to note 6(b)(i) for further details.

The Group realised a total gain of $4,800,354 (before tax) on the disposal of its entire investment in Avexa from 2007 to 2009.

(c) Impairment of investments in subsidiaries

- - - 3,433,368

The impairment of investments in the subsidiaries of the Company arose from the carrying amount exceeding the net assets of the relevant subsidiaries as at 30 June 2009. See note 2(i) and note 24(a).

circadian technologies limited

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	Consolidated Parent	Consolidated Parent
	2009 $ 2008 $ 2009 $ 2008 $
(d) Other expenses included in the Income Statement Included in occupancy expenses: – Operating lease rentals Included in administrative expenses: – Depreciation of: Equipment and furniture (note 15) Leasehold improvements (note 15) Total depreciation expense – Employee benefts expense: Salaries and fees Cash bonuses Superannuation Share-based payments expense (note 26) Other employee benefts expense Total employee benefts expense 9. Income Tax (a) Income Tax Expense The major components of income tax expense are: Income Statement Current income tax Current income tax charge/(beneft) Adjustments in respect of tax losses of previous years Deferred income tax Relating to origination and reversal of temporary differences Income tax expense reported in the income statement (c) (b) Amounts charged or credited directly to equity Deferred income tax related to items charged (credited) directly to equity Net unrealised loss on listed investments Income tax beneft reported in equity	101,297 96,601 101,297 96,601 33,717 30,642 30,406 29,383 351 692 351 692
	34,068 31,334 30,757 30,075
	1,946,846 1,638,173 1,946,846 1,510,188 206,250 199,250 206,250 179,250 209,409 174,885 207,610 161,566 244,031 113,318 244,031 113,318 184,967 134,883 184,682 122,527
	2,791,503 2,260,509 2,789,419 2,086,849
	405,046 (307,447) 16,290 (32,375) (117,831) (16,073) (36,523) (478) (d) (241,348) 1,492,770 42,180 132,386 45,867 1,169,250 21,947 99,533 (295,923) (3,524,279) - - (295,923) (3,524,279) - -
		45,867 1,169,250 21,947 99,533
		(295,923) (3,524,279) - -
		(295,923) (3,524,279) - -

2009 annual report 57

NOTES TO THE FINANCIAL STATEMENTS (continued)

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9. Income Tax (continued)

Consolidated	Consolidated	Parent
2009 $ 2008 $		2009 $ 2008 $
(c) Numerical reconciliation between aggregate tax expense recognised in the income statement and tax expense calculated per the statutory income tax rate A reconciliation between tax expense and the product of accounting (loss)/proft before income tax multiplied by the Group’s applicable income tax rate is as follows: Accounting (loss)/proft before tax (9,875,803) (1,116,869) At the parent entity’s statutory income tax rate of 30% (2008: 30%) (2,962,741) (335,061) Adjustments in respect of tax losses of previous years (117,831) (16,073) Unrecognised unrealised & realised tax assets 6,454,329 1,826,952 Recognition of losses not recognised in prior years - (88,549) (Increase)/decrease in deferred tax assets due to temporary differences (2,908,563) 607,833 (Decrease)/increase in deferred tax liabilities due to temporary differences (199,358) 213,669 Expenditure not allowable for income tax purposes 577,319 94,250 Income assessable/(not assessable) for income tax purposes 76,523 (53,862) Research and development additional deductions allowable (251,481) (116,828) Difference between tax gain/loss and accounting gain/loss on disposal of investments – non-assessable (622,330) (963,081) Income tax expense reported in the income statement 45,867 1,169,250 Balance Sheet (d) Recognised deferred tax assets and liabilities 2009 $ 2008 $ Deferred income tax at 30 June relates to the following: *CONSOLIDATED* Deferred tax liabilities: Revaluations of listed investments to fair value (unrealised capital gains) - (295,921) Temporary difference for investment in associate (100,621) (283,177) Interest and royalty income receivable (future assessable income) (52,758) (69,562) (153,379) (648,660) Deferred tax assets: De-recognition of tax asset due to fair value adjustment - - Realised gains – reversal of prior period impairment losses - - Tax losses - 307,447 Employee provisions - 35,976 Future allowable deductions/income not assessable 153,281 75,315 153,281 418,738 Deferred tax expense		(5,187,589) 4,249,598
		(1,556,277) 1,274,879 (36,523) (478) 185,269 12,000 - - (87,033) 65,495 (45,702) 54,893 1,570,385 430,592 (408) (1,737,848) (7,764) - - -
	45,867 1,169,250	21,947 99,533
	Balance Sheet	Income Statement
	2009 $ 2008 $	2009 $ 2008 $
	- (295,921) (100,621) (283,177) (52,758) (69,562)	- - 182,555 (173,404) 16,804 (40,267) - (622,329) - (577,733) - - (35,976) (97,702) 77,965 18,665
	(153,379) (648,660)
	- - - - - 307,447 - 35,976 153,281 75,315
	153,281 418,738

		241,348 (1,492,770)

58 circadian technologies limited

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	Balance Sheet	Income Statement
	2009 $ 2008 $	2009 $ 2008 $
*PARENT* Deferred tax liabilities: Temporary difference on intercompany loans to subsidiaries Interest receivable (future assessable income) Deferred tax assets: Tax losses Employee provisions Future allowable deductions/income not assessable Deferred tax expense	(17,857) (14,628) (20,629) (69,562)	(3,229) (14,628) 48,933 (40,266) - - (35,976) (97,702) (51,908) 20,210
	(38,486) (84,190)
	- 307,447 - 35,976 20,629 72,536
	20,629 415,959

		(42,180) (132,386)

(e) Unrecognised temporary differences

At 30 June 2009, there are no unrecognised temporary differences relating to deferred tax liabilities associated with the Group’s investments in subsidiaries, associates or joint ventures, as the Group has no liability for additional taxation should unremitted earnings be remitted (2008: $Nil).

Temporary differences with respect to deferred taxes associated with investments, intellectual property and other miscellaneous items which have a low probability of realisation are also unrecognised. These amounted to $4,545,187 at year end (2008: $1,678,615).

(f) Tax consolidation

(i) Members of the tax consolidated group

Circadian Technologies Limited and its 100% owned subsidiaries formed a tax consolidated group effective 1 July 2003. Circadian Technologies Limited is the head entity of the tax consolidated group. Vegenics Limited, which became a wholly-owned subsidiary of Circadian Technologies Limited on 14 August 2008, has joined this tax consolidated group effective from that date which means that from 14 August 2008 tax losses generated by Vegenics may be used within the group to offset any possible future taxable income. The extent to which tax losses generated by Vegenics prior to 14 August 2008 which may be made available to the group is to be determined (also see (g) below).

(ii) Tax effect accounting by members of the tax consolidated group

Measurement method adopted under UIG 1052 Tax Consolidation Accounting

Members of the tax consolidated group have adopted the “separate taxpayer within group” method to allocate the current and deferred tax amounts to each entity within the group. For details with respect to this method, see accounting policy note 2(y).

Tax consolidation contributions/(distributions)

In preparing the accounts for Circadian Technologies Limited for the current year, the following amounts have been recognised as tax-consolidation contribution adjustments:

Total increase/(reduction) to tax expense of Circadian Technologies Limited Total increase/(reduction) to investments in subsidiaries Total distributions (to)/from subsidiaries recognised in the income statement of Circadian Technologies Limited	Parent
	2009 $ 2008 $
	- - 18,332 (32,071) (289,115) 258,596

2009 annual report

NOTES TO THE FINANCIAL STATEMENTS (continued)

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9. Income Tax (continued)

(g) Carry forward unrecognised tax losses

The Group had income tax losses of $2,842,877 and capital losses of $744,879 at year end (2008: income tax losses of $307,447 and $Nil capital tax losses) (these amounts are tax effected at 30%) for which no deferred tax asset is recognised on the balance sheet as they are currently not considered probable of realisation. These tax losses are available indefinitely for offset against future assessable income subject to continuing to meet relevant statutory tests.

Vegenics had generated income tax losses of $2,489,772 (tax effected at 30%) prior to the company entering the tax consolidated group on 14 August 2008. These also have not been recognised in the balance sheet – see (f)(i) above.

(h) Franking credit balance

The franking account balance at the end of the financial year at 30% is $330,630 (2008: $350,862), which represents the amount of franking credits available for the subsequent financial year.

10. Earnings per Share The following refects the income used in the basic and diluted earnings per share computations: (a) Earnings used in calculating earnings per share Net loss attributable to ordinary equity holders of the parent (b) Weighted average number of shares Weighted average number of ordinary shares on issue for basic earnings per share Effect of dilution: Deferred shares Share options Weighted average number of ordinary shares adjusted for the effect of dilution	Consolidated
	2009 $ 2008 $
	(9,916,648) (1,147,805)
	Number of shares 2009 Number of shares 2008
	44,625,032 40,124,498 - - - -
	44,625,032 40,124,498

There have been no other transactions involving ordinary shares or potential ordinary shares that would significantly change the number of ordinary shares or potential ordinary shares outstanding between the reporting date and the date of completion of this financial report.

Diluted earnings per share is calculated as net profit/(loss) divided by the weighted average number of ordinary shares and dilutive potential ordinary shares. The share options in place are not dilutive as their respective exercise prices are in excess of the share price at year end. Although the deferred shares would generally be included in the calculation due to the conditions of the issuance being satisfied, because there is a loss in the current year, these instruments would be anti-dilutive (decrease the loss per share) and therefore have been excluded from the calculation. Therefore the basic loss per share is the same as the diluted value per share.

(c) Information on the classification of securities

Options granted to employees (including key management personnel) as described in note 26 are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share to the extent they are dilutive.

circadian technologies limited

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	Consolidated	Consolidated		Parent
	2009	2008	2009	2008
	$	$	$	$
11. Current Assets – Cash and Cash Equivalents
and Non-Cash Investing Activities
(a) Cash and cash equivalents
Cash at bank and in hand	1,831,560	1,006,626	517,522	617,324
Short-term deposits	37,005,000	45,210,000	31,250,000	32,650,000
	38,836,560	46,216,626	31,767,522	33,267,324

Cash at bank earns interest at floating rates based on daily bank deposit rates. The carrying amounts of cash and cash equivalents represent fair value.

Short term-deposits are with a major bank and are made for varying periods of between 30 days and 90 days, depending on the immediate cash requirements of the Group, and earn interest at a fixed rate for the respective short-term deposit periods. At year end the average rate was 4.24% (2008: 7.57%).

(b) Non-cash investing activities

Settlement (part consideration) of acquisition of minority interests in subsidiary (note 21(b)) 12. Current Assets – Receivables Interest receivable Receivable – related party (i) Royalty income receivable (ii) GST receivable (ii) Other (ii) Total current receivables	5,206,117 - 5,206,117 -
	78,739 278,274 68,765 231,875 - - 557,040 82,500 83,831 26,578 - - 165,761 170,397 - 23,125 146,056 61,674 69,320 -
	474,387 536,923 695,125 337,500

(i) Parent: A management services agreement between Circadian and its subsidiary Vegenics Limited was signed in March 2007 relating to the provision of management and related support services by Circadian. The original agreement provided for a management fee of $75,000 plus GST payable monthly in arrears. The agreement was amended effective 1 July 2008 providing for an increase to $168,800 plus GST payable quarterly in arrears. The increase is due to the provision of the services of additional personnel, related overheads and for the services of the Product Development Review Committee. The related party receivable is non-interest bearing and has payment terms of 30 days.

(ii) These receivables are non-interest bearing, most of which have repayment terms of between 30 and 60 days.

(a) Fair value and credit risk

Due to the short term nature of these receivables, their carrying value is assumed to approximate their fair value.

The maximum exposure to credit risk is the fair value of receivables.

(b) Foreign exchange and interest rate risk

Details regarding foreign exchange and interest rate risk exposure are disclosed in note 3.

2009 annual report 61

NOTES TO THE FINANCIAL STATEMENTS (continued)

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Consolidated Parent	Consolidated Parent
2009 $ 2008 $ 2009 $ 2008 $
13. Non-Current Assets – Financial Investments and Subsidiaries Listed Australian shares – at fair value (a) 333,541 3,916,107 - - Unlisted subsidiaries (b) (note 24) – carrying value - - 32,145,141 29,491,803 Total non-current investments 333,541 3,916,107 32,145,141 29,491,803 (a) Details of listed Australian shares Ownership Interest Fair Value (i) Cost of Investment
	333,541 3,916,107 32,145,141 29,491,803
	Fair Value (i) Cost of Investment
Listed Investments 2009 % 2008 %	2009 $ 2008 $ 2009 $ 2008 $
Non-current investments: Avexa Limited (ii) - 1.8 Optiscan Imaging Ltd (iii) 6.9 7.0 Associate: Antisense Therapeutics Ltd (iv) (note 14) 18.7 18.7 Total listed investments	- 2,126,374 - 3,102,178 333,541 1,789,733 771,131 771,131
	333,541 3,916,107 771,131 3,873,309 3,955,540 7,269,642 3,114,766 3,114,766
	4,289,081 11,185,749 3,885,897 6,988,075

Non-current investments in listed shares (which are not associates) are designated and accounted for as “available-for-sale” financial assets pursuant to AASB 139 Financial Instruments: Recognition and Measurement .

These non-current investments in listed shares consist of investments in ordinary shares, and therefore have no fixed maturity date or coupon rate.

(i) The fair value represents the share (bid) price at year end, and does not include any capital gains tax or selling costs that may be applicable on the disposal of these investments. The capital gains tax that may be applicable on the disposal of these investments is included in the deferred tax liability account.
(ii) During the current year, the Group sold its remaining holding of 7,087,914 ordinary shares in Avexa for net proceeds of $619,245. The sale of the Avexa shares resulted in a loss of $2,482,931 which was partially offset by the recovery of previously recognised impairment losses. See note 8(b) for further details.

The Group also sold share rights in Avexa Limited during the year resulting in a net gain of $61,108. See note 6(b) for further details.

The Group realised a total gain of $4,800,534 (before tax) on the disposal of its entire investment in Avexa from 2007 to 2009.
(iii) An impairment loss of $437,590 was recognised in the income statement during the current year relating to the investment in Optiscan Imaging Limited. See note 8(a) for further details.
(iv) The Group’s total undiluted interest in Antisense Therapeutics, including its indirect interest in Antisense Therapeutics through its investment in Syngene Limited, amounted to 22.8% at year end, representing a market value of $4,808,776 (cost: $3,214,136).

(b) Details of investments in subsidiaries

Of the $32,145,141 (2008: $29,491,803) in investments in subsidiaries, $27,386,389 (2008: $21,500,000) relates to the investment in Vegenics Limited which is 100% owned by Circadian at 30 June 2009 (2008: 67%). See note 21 in respect to Circadian’s acquisition of the minority interests' 33% share of Vegenics and note 24 regarding details of other subsidiaries.

(c) Impairment of investments in subsidiaries

There was an impairment of investments in the subsidiaries of the Company of $3,433,368 during the 2009 financial year which arose from the carrying values exceeding the net assets of the relevant subsidiaries. See note 24(a).

62 circadian technologies limited

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14. Non-Current Assets – Investments in Associates

(a) Investment details

(a) Investment details
Ownership Interest	Carrying Amount
Name and Principal Activities 2009 % 2008 %	2009 $ 2008 $
Listed: Antisense Therapeutics Ltd – Gene directed therapeutics (i) 18.7 18.7 Unlisted: Syngene Limited – Gene diagnostics 42.4 42.4	735,623 1,186,481 566,161 1,174,677
	1,301,784 2,361,158

(i) Although the Group’s direct interest in Antisense Therapeutics has been diluted to 18.7% due to capital raisings by Antisense Therapeutics, including its indirect interest it has a 22.8% interest at year end. As such the Group has continued to equity account the results of Antisense Therapeutics.

The Group’s proportion of voting power held in each associate is the same as its ownership interest. The Group’s investments in the associates are accounted for in accordance with the accounting policy described in note 2(j).

Syngene Limited is an unlisted public company whilst Antisense Therapeutics Limited is listed on the Australian Stock Exchange. The associates are both incorporated in Australia and have 30 June reporting dates.

(b) Impairment

There was an impairment loss of $45,000 in the current year (2008: $40,000) relating to the write-down of the loan advanced to Syngene Limited. This amount is included in the line item ‘Impairment losses’ in the Income Statement.

(c) Movements in the carrying amounts of the Group’s investments in associates Antisense Therapeutics Limited: At 1 July Acquisition of shares Net gain on new share issue by associate (note 20(b)(iii)) Share of movement in equity reserve (note 20(b)(iii)) Share of loss after income tax At 30 June Syngene Limited: At 1 July Share of (loss)/proft after income tax Share of net unrealised (loss)/gain on listed investment for the year (i) At 30 June	Consolidated
	2009 $ 2008 $
	1,186,481 1,158,947 - 250,000 - 144,849 45,436 50,979 (496,294) (418,294)
	735,623 1,186,481
	1,174,677 596,668 (108,105) 45,313 (500,411) 532,696
	566,161 1,174,677

(i) The Group’s share of the net unrealised gain on listed investment represents Syngene’s 9.53% investment in Antisense Therapeutics Limited. The movement in the fair value of this investment during the year is recognised in the net unrealised gains reserve account (see note 20(b)(iv)).

(d) Fair value of investment in listed associate

The fair value of the Group’s investment in Antisense Therapeutics Limited is $3,955,540 (2008: $7,269,642). Also see note 13(a)(iv).

2009 annual report

NOTES TO THE FINANCIAL STATEMENTS (continued)

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14. Non-Current Assets – Investments in Associates (continued)

(e) Share of associates’ commitments – Equity accounting only

(i) Syngene Limited had an exclusive licence from the Howard Florey Institute (Institute) to technology and patents held by the Institute in the area of hybridization histochemistry and related fields. Under this agreement, Syngene was committed to pay the Institute a licence revenue fee of $50,000 per year plus a percentage of royalty income earned varying between 6% and 7.5%. On 24 December 2008, Syngene provided notice to terminate the agreement with the Institute which was effective 30 June 2009. As such, Syngene had no commitment at 30 June 2009.
(ii) Antisense Therapeutics Limited has an expenditure commitment of $79,310 (2008: $3,482,487) relating to research and development and is payable within one year. The Group’s share of this expenditure commitment is $14,855 (2008: $652,270).

The lease expenditure commitment for Antisense Therapeutics amounts to $23,976 which is payable within one year. This commitment relates to the leasing of office premises. The lease is for a term of one year with a renewal option for a further one year. The Group’s share of Antisense Therapeutics’ lease expenditure commitment is $4,491 (2008: $4,360).

(f) Summarised financial information

The following table illustrates summarised financial information relating to the Group’s associates.

Extract from the associates’ balance sheets: Current assets Non-current assets Current liabilities Non-current liabilities Net assets Share of associates’ net assets Extract from the associates’ income statements: Revenue Net loss Share of the associates’ proft or loss accounted for using the equity method: Loss before income tax Income tax beneft/(expense) Loss after income tax	Consolidated
	2009 $ 2008 $
	5,012,223 9,877,911 2,021,413 3,713,816
	7,033,636 13,591,727 1,097,638 3,459,317 672,581 1,025,991
	1,770,219 4,485,308
	5,263,417 9,106,419
	1,301,784 2,361,158
	734,464 7,115,265 (2,904,813) (2,029,966) (771,279) (152,255) 166,880 (220,726)
	(604,399) (372,981)

(g) Contingent liabilities of associates

The associates have no contingent liabilities at year end.

circadian technologies limited

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	Consolidated	Consolidated
	2009	2008	2009	2008
	$	$	$	$
15. Non-Current Assets – Plant and	Equipment
Equipment and furniture at cost
Opening balance	250,484	227,381	239,727	225,654
Additions	15,164	32,260	15,164	23,230
Disposals	(46,751)	(9,157)	(46,751)	(9,157)
Closing balance	218,897	250,484	208,140	239,727
Accumulated depreciation
Opening balance	171,156	146,583	169,845	146,531
Depreciation for the year	33,717	30,642	30,406	29,383
Disposals	(46,751)	(6,069)	(46,751)	(6,069)
Closing balance	158,122	171,156	153,500	169,845
Net carrying amount	60,775	79,328	54,640	69,882
Leasehold improvements at cost
Opening balance	73,697	73,697	73,697	73,697
Additions	5,781	-	5,781	-
Closing balance	79,478	73,697	79,478	73,697
Accumulated depreciation
Opening balance	73,310	72,618	73,310	72,618
Depreciation for the year	351	692	351	692
Closing balance	73,661	73,310	73,661	73,310
Net carrying amount	5,817	387	5,817	387
Total plant and equipment, net	66,592	79,715	60,457	70,269
16. Current Liabilities – Payables
Creditors (unsecured) (i)	1,743,240	1,373,112	396,850	330,145
Income received in advance	277,441	251,699	-	-
PAYG tax liability	55,140	40,423	55,140	31,553
GST payable	68,218	-	68,218	-
	2,144,039	1,665,234	520,208	361,698

(i) Creditors are non-interest bearing and are normally settled on 30 day terms.

(a) Fair value

Due to the short term nature of these payables, their carrying value is assumed to approximate their fair value.

(b) Interest rate, foreign exchange and liquidity risk

Information regarding interest rate, foreign exchange and liquidity risk exposure is set out in note 3.

2009 annual report

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NOTES TO THE FINANCIAL STATEMENTS (continued)

	Consolidated Parent
	2009 $ 2008 $ 2009 $ 2008 $
17. Current Liabilities – Provisions Annual Leave Long service leave (note 18) 18. Non-Current Liabilities – Provisions Long service leave	136,936 72,675 136,936 61,305 50,360 48,876 50,360 48,876
	187,296 121,551 187,296 110,181
	21,228 9,739 21,228 9,739

Refer to note 2(u) for the relevant accounting policy and a discussion of the significant estimations and assumptions applied in the measurement of this provision.

19. Contributed Equity

(a) Ordinary shares Issued and fully paid at 30 June Movement in ordinary shares: Opening balance Issue of shares (i) Deferred share issue (i) Ordinary shares on issue: Opening balance Issue of shares (i) Deferred share issue: Opening balance Shares to be issued (i)	38,374,094 33,167,977 38,374,094 33,167,977
	33,167,977 33,167,977 33,167,977 33,167,977 4,247,467 - 4,247,467 - 958,650 - 958,650 -
	38,374,094 33,167,977 38,374,094 33,167,977
	No. No. No. No.
	40,124,498 40,124,498 40,124,498 40,124,498 5,117,430 - 5,117,430 -
	45,241,928 40,124,498 45,241,928 40,124,498
	- - - - 1,155,000 - 1,155,000 -
	1,155,000 - 1,155,000 -

Fully paid ordinary shares carry one vote per share and carry the right to dividends.

(i) Circadian completed its acquisition of 100% of Vegenics on 14 August 2008 (previously 67% owned by Circadian), providing it with complete ownership and control of rights to Vegenics’ extensive product pipeline and intellectual property which forms the basis for Circadian’s new core business. It acquired the additional 33% interest from the Ludwig Institute for Cancer Research Ltd (LICR) and Licentia Limited (Licentia). Under this transaction LICR and Licentia have become substantial shareholders of Circadian. Consideration for the acquisition of LICR’s and Licentia’s interests in Vegenics is in two tranches:

Tranche 1:

5,117,430 Circadian shares were issued to LICR (2,589,635 shares) and Licentia (2,527,795 shares) on 14 August 2008. This equates to a combined interest of 11.3% after the share issue. The value of the issued shares is $4,247,467;
50% of the shares were escrowed for a period of 12 months from date of issue. Subsequent to year end, on 14 August 2009 these shares were released from escrow. The remaining 50% are escrowed until 14 August 2010 (24 months from their issue date); and
a cash payment of Euro 400,000 (A$680,272) was made to Licentia.

circadian technologies limited

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Tranche 2:

A further 1,155,000 Circadian shares will be issued to LICR (532,455 shares) and Licentia (622,545 shares) on the earlier to occur of certain product development milestones or the second anniversary of the date of Circadian’s acquisition of LICR’s and Licentia’s interests in Vegenics (i.e. 14 August 2010). The value of the shares to be issued is $958,650.

See note 21(b) for further details on the acquisition of the minority interests in Vegenics.

Share options:

The Company has one share-based payment scheme: the Employee Share Option Plan under which options to subscribe for the Company’s shares have been granted to certain employees (refer to note 26).

(b) Capital management

The Group is not subject to any externally imposed capital requirements.

When managing share capital, management’s objective is to ensure the entity continues as a going concern as well as to provide benefits to shareholders and for other stakeholders. In order to maintain or achieve an appropriate capital structure, the Company may issue new shares or reduce its share capital, subject to the provisions of the Company’s constitution.

20. Retained Earnings and Reserves (a) Movements in retained earnings were as follows: Balance at 1 July Net (loss)/proft for the year Balance at 30 June (b) Reserves Asset revaluation reserve (i) Option reserve (ii) Contributed capital of associate reserve (iii) Net unrealised gains reserve (iv) Employee equity benefts reserve (v) Equity reserve attributable to parent (vi) Total reserves *(i) Movement in asset revaluation reserve:* Opening and closing balance *(ii) Movement in option reserve:* Opening and closing balance *(iii) Movement in contributed capital of associate reserve:* Opening balance Investment in associate (note 14): – Gain on new share issue by associate – Share of movement in equity reserve – Tax effect Closing balance	Consolidated Parent
	2009 $ 2008 $ 2009 $ 2008 $
	13,883,872 15,031,677 25,547,101 21,397,036 (9,916,648) (1,147,805) (5,209,536) 4,150,065
	3,967,224 13,883,872 20,337,565 25,547,101
	734,407 734,407 734,407 734,407 19 19 19 19 1,053,119 1,007,683 - - 527,707 2,849,426 - - 1,264,570 1,020,539 1,264,570 1,020,539 (7,172,143) (5,238,453) - -
	(3,592,321) 373,621 1,998,996 1,754,965
	734,407 734,407 734,407 734,407
	19 19 19 19
	1,007,683 811,855 - - - 144,849 - - 45,436 50,979 - - - - - -
	1,053,119 1,007,683 - -

2009 annual report

NOTES TO THE FINANCIAL STATEMENTS (continued)

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	Consolidated	Consolidated
	2009	2008	2009	2008
	$	$	$	$
20. Retained Earnings and Reserves(continued)
(b) Reserves (continued)
*(iv) Movement in net unrealised gains reserve:*
Opening balance	2,849,426	10,430,747	-	-
– Net losses on non-current listed investments for the year	(2,958,934)	(7,120,592)	-	-
Tax effect on above net losses	559,254	2,465,766	-	-
Share of associate’s net unrealised (loss)/gain	(500,411)	532,696	-	-
Net losses on non-current listed investments for the
year after tax	(2,900,091)	(4,122,130)	-	-
– Realised losses/(gains) on non-current listed investments
transferred to the income statement	404,114	(4,517,705)	-	-
Tax effect on above realised losses/gains	(122,396)	1,058,514	-	-
Net realised losses/(gains) transferred to the income
statement	281,718	(3,459,191)	-	-
– Unrealised impairment losses recognised in the
income statement	437,590	-	-	-
Tax effect on above unrealised impairment loss	(140,936)	-	-	-
Net unrealised impairment losses recognised in
the income statement	296,654	-	-	-
Closing balance	527,707	2,849,426	-	-
*(v) Movement in employee equity benefts reserve:*
Opening balance	1,020,539	907,221	1,020,539	907,221
Share-based payments expense	244,031	113,318	244,031	113,318
Closing balance	1,264,570	1,020,539	1,264,570	1,020,539
*(vi) Movement in equity reserve attributable to parent:*
Opening balance	(5,238,453)	(5,238,453)	-	-
Premium paid on acquisition of minority interests in
subsidiary (note 21(b))	(1,933,690)	-	-	-
Closing balance	(7,172,143)	(5,238,453)	-	-

(vii) Nature and purpose of reserves:

Asset revaluation reserve

The asset revaluation reserve is used to record increments and decrements in the value of non-current assets. The reserve can only be used to pay dividends in limited circumstances.

Option reserve

This reserve is used to record the consideration received for options granted to executives and employees as part of their remuneration.

Contributed capital of associate reserve

This reserve is used to record the Group’s equity accounting of share issues by its associated entities.

Net unrealised gains reserve

This reserve records fair value changes on listed investments (other than investment in listed associate) and the Group’s equity share of its associate’s listed investment.

circadian technologies limited

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Employee equity benefits reserve

This reserve is used to record the value of equity benefits provided to executives and employees as part of their remuneration. Refer to note 26 for further details on the equity benefit plans.

Equity reserve attributable to parent

This reserve recognises the minority interests' share of the change in the net assets of Vegenics on new investments (capital injections) made by the parent in Vegenics, which are offset by the relevant effect of additional investments made by minority interests. The premium paid by Circadian on acquisition of the balance of Vegenics’ minority interests is also recognised in this account (also see note 21(b)).

21. Minority Interests (a) Balance of minority interests At balance date, the minority interests in the Group comprised: Share of contributed equity Share of accumulated losses	Consolidated
	2009 $ 2008 $
	280,084 8,922,784 (255,862) (4,940,841)
	24,222 3,981,943

The balance at 30 June 2009 represents the minority interest (40%) in CancerProbe Pty Ltd (also see note 29 Events after the balance sheet date). The balance at 30 June 2008 also includes the minority interest (33%) in Vegenics Limited, which was acquired by Circadian on 14 August 2008 (see below for more details).

(b) Acquisition of minority interests

As detailed in note 19, Circadian completed its acquisition of the Ludwig Institute for Cancer Research Ltd’s (LICR) and Licentia Limited’s (Licentia) combined 33% interest in Vegenics on 14 August 2008. This increased Circadian’s interest in Vegenics from 67% to 100%.

The total consideration paid for the acquisition of the minority interests was $5,886,389 which comprised the payment of cash and the issue of 5,117,430 ordinary shares in Circadian Technologies Limited with a further 1,155,000 shares to be issued on the earlier to occur of certain product development milestones or the second anniversary of the date of Circadian’s acquisition of LICR’s and Licentia’s interests in Vegenics (i.e. 14 August 2010). The fair value of each share is 83 cents, based on the quoted (bid) price of the shares of Circadian Technologies Limited at the date of the transaction.

Details of the transaction are as follows:

Consideration: Issue of 5,117,430 ordinary shares – at fair value Deferred issue of 1,155,000 ordinary shares – at fair value Cash Total consideration Minority interests in Vegenics acquired Premium paid on acquisition (i)	2009 $ 2008 $
	4,247,467 - 958,650 -
	5,206,117 - 680,272 -
	5,886,389 - (3,952,699) -
	1,933,690 -

(i) This premium is reflected on consolidation through the equity reserve attributable to parent. See note 20(b)(vi).

2009 annual report

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NOTES TO THE FINANCIAL STATEMENTS (continued)

	Consolidated	Consolidated	Parent
	2009	2008	2009	2008
	$	$	$	$
22. Cash Flow Statement Reconciliation
(a) Reconciliation of net (loss)/proft after tax to net cash	fows from operations
Net (loss)/proft	(9,921,670)	(2,286,119)	(5,209,536)	4,150,065
Adjustments for:
Depreciation	34,068	31,334	30,757	30,075
Employee benefts expense	244,031	113,318	244,031	113,318
Share of associates’ net losses	604,399	372,981	-	-
Interest income from subsidiaries	-	-	(334,738)	(278,484)
Distributions to/(from) subsidiaries	-	-	289,115	(258,596)
Write-down of receivables from subsidiaries	-	-	1,000,049	1,487,797
Impairment of investments in subsidiaries	-	-	3,433,368	-
Interest expense on loans from subsidiaries	-	-	170,267	324,976
Impairment losses on non-current fnancial investments	437,590	-	-	-
Write-down of loan to associate	45,000	40,000	45,000	40,000
Net exchange differences	50,830	-	-	-
Changes in assets and liabilities:
(Increase)/decrease in fnancial investments	1,027,725	327,605	-	-
(Increase)/decrease in prepayments	210,314	(131,681)	(32,744)	1,033
(Increase)/decrease in interest receivable	199,536	(135,628)	163,110	(134,224)
(Increase)/decrease in other receivables	(137,000)	(88,183)	(520,735)	7,626
(Decrease)/increase in payables	472,689	(556,902)	152,376	105,096
(Decrease)/increase in income tax payable	-	(355,497)	-	(355,497)
(Decrease)/increase in employee provisions	77,234	(314,643)	88,604	(326,013)
(Increase)/decrease in deferred tax assets	265,457	971,654	77,527	85,387
(Decrease)/increase in deferred tax liabilities	(199,358)	213,669	(35,349)	14,626
Net cash from/(used in) operating activities	(6,589,155)	(1,798,092)	(438,898)	5,007,185
(b) Non-cash fnancing and investing activities
Settlement (part consideration) of acquisition of minority
interests in subsidiary (note 21)	5,206,117	-	5,206,117	-
Share-based payments expense (note 26)	244,031	113,318	244,031	113,318
	5,450,148	113,318	5,450,148	113,318
(c) Disclosure of investing activities
Refer to notes 13 and 24.

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23. Interests in Joint Venture Operations

23. Interests in Joint Venture Operations
Parties Pharmaceutical Research and Development Project Share of Project Income (a)	Loss Contributed (b)
2009 % 2008 %	2009 $ 2008 $
Neuro Therapeutics Ltd and Monash University (d) Anti-Allergy Asthma Analgesics Compound 67.5 85.7 67.5 85.7 Neuro Therapeutics Ltd and University of Sydney (d) Memory Enhancement 60 60 Neuro Therapeutics Ltd and University of Melbourne (d) Alzheimer’s Disease Research 100 100 Neuro Therapeutics Ltd and Howard Florey Institute (d) Paracetamol 50 50 Polychip Pharmaceuticals Pty Ltd and Monash University Dicarba Analogues 50 50 Cancer Therapeutics Ltd and Monash University Peptide-Based Cancer Vaccine 75 75 Other non-joint venture research project costs (c)	1,018 118,472 27,630 202,026 1,268 113,319 23,165 178,633 101,713 221,906 849,237 695,296 3,479,407 1,889,614
	4,483,438 3,419,266

(a) There was no project income in the current year or in the prior year from any of the joint venture projects.
(b) These amounts represent the Company’s, or controlled entities’, share of the research and development costs incurred and expensed on a project.
(c) The other non-joint venture research project costs predominantly relate to the development programs in respect to the Vascular Endothelial Growth Factors (VEGF) based therapeutics.
(d) Funding of research projects in the neuroscience research portfolio concluded during the current year. As a consequence of Circadian’s strategic focus now being the development of biological therapies to treat cancer, the Company has either returned or is in the process of returning the intellectual property rights in respect to these projects to the relevant universities and institutes.
(e) Expenditure commitments relating to joint venture research projects are payable as follows (these amounts are included in the total commitments disclosed in note 27):

Within one year After one year but not more than fve years	Consolidated Parent
	2009 $ 2008 $ 2009 $ 2008 $
	- 720,000 - - - - - -
	- 720,000 - -

(f) The consolidated entity has nil assets in the financial statements employed in the joint ventures.
(g) There were no impairment losses in the assets employed in the joint venture operations.

2009 annual report 71

NOTES TO THE FINANCIAL STATEMENTS (continued)

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24. Related Party Disclosures

(a) Subsidiaries

The consolidated financial statements include the financial statements of Circadian Technologies Limited and the subsidiaries listed in the following table:

the following table:
	Book value of parent entity investment and % equity interest
Name of company	2009 $ %	2008 $ %
Circadian Pharmaceuticals (Aust) Pty Ltd Precision Patchclamps (Int) Pty Ltd Polychip Pharmaceuticals Pty Ltd Fibre Optics (Aust) Pty Ltd Cancer Therapeutics Limited Neuro Therapeutics Limited Vegenics Limited * CancerProbe Pty Ltd	- 100 - 100 2,179,253 100 2,540,282 100 39,217 100 - 100 27,386,389 100 - 60 32,145,141	- 100 - 100 2,882,158 100 5,109,645 100 - 100 - 100 21,500,000 67 - 60 29,491,803

As described in note 19, Circadian completed its acquisition of the Ludwig Institute for Cancer Research Ltd’s (LICR) and Licentia Limited’s (Licentia) combined 33% interest in Vegenics on 14 August 2008. This increased Circadian’s interest in Vegenics from 67% to 100%.

Circadian Technologies Limited is the ultimate parent entity.

All subsidiaries were incorporated in Australia and have the same financial year as Circadian Technologies Limited.

As at 30 June 2009, the above subsidiaries were reviewed to determine whether the investment values held by the Company were impaired. As a result of this exercise, an impairment of $3,433,368 was recognised in the income statement during the 2009 financial year. This arose as the carrying value of the subsidiaries exceeded their net assets.

(b) Transactions with related parties

Transactions and balances with related parties during the years ended 30 June 2009 and 2008 are as follows:

(i) Loans receivable from subsidiaries of $Nil (2008: $175,398) are non-interest bearing, stated at the lower of amortised value and recoverable value, are unsecured and have no fixed terms of repayment of principal (although repayment is not expected within the next year). Evidence of impairment of an investment in or a receivable from a subsidiary is when the net assets of the relevant subsidiary are lower than the relevant investment/receivable. Interest of $334,738 (2008: $278,484) was incurred by the subsidiaries for the year due to the discounting of the loans and use of the effective interest method in accordance with AASB 139 Financial Instruments: Recognition and Measurement (see note 2(f)).

There is a loan to Syngene Limited, an associated entity, of $629,987 (2008: $584,987), of which $45,000 was written down in the current year and $584,987 was written down in the prior years to reflect its fair value of $Nil at year end. The loan is repayable on demand but not later than 31 May 2010 and interest is payable by the associated entity at 5% p.a.

The amounts are owed by the following companies (stated at the lower of amortised value and recoverable value):

Subsidiaries Cancer Therapeutics Limited ¶ Neuro Therapeutics Limited ¶	2009 $ 2008 $
	- 175,398 - -
	- 175,398

Associated Entity

- - Syngene Ltd (note 14)

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The amortised value of the amount payable by Cancer Therapeutics Limited is $3,467,750 of which $851,558 was written off in 2009 (2008: $840,563). The recoverable value is $Nil. The amortised value of the amount payable by Neuro Therapeutics Limited is $2,382,867 of which $148,491 was written off in 2009 (2008: $647,234). The recoverable value is $Nil. The amounts lent to these entities during the year were used for working capital purposes – predominantly the funding of research and development activities.

The respective net assets of the subsidiaries are taken into account to determine whether receivables from these companies are impaired.

(ii) The amortised value of the loans payable to subsidiaries of $3,284,979 (2008: $2,763,636) are non-interest bearing, unsecured and have no fixed terms of repayment of principal (repayment is not expected within the next year, however, as the parent funds the activities of its wholly-owned subsidiaries, the loan from subsidiaries will be reduced by these amounts). Interest of $170,267 was incurred by the parent during the year (2008: $324,976) due to the discounting of the loans and use of the effective interest method in accordance with AASB 139 Financial Instruments: Recognition and Measurement (see note 2(t)).

The amounts are owed to the following companies:

Subsidiaries Precision Patchclamps (Int) Pty Ltd Circadian Pharmaceuticals (Aust) Pty Ltd Polychip Pharmaceuticals Pty Ltd # Fibre Optics (Aust) Pty Ltd ^	2009 $ 2008 $
	67,558 67,558 88,251 88,251 982,983 1,130,200 2,146,187 1,477,627
	3,284,979 2,763,636

Circadian funded Polychip Pharmaceuticals Pty Ltd’s (Polychip) research & development and other operating costs during the year resulting in a decrease to the amount owing to Polychip at year end.
^ Fibre Optics (Aust) Pty Ltd (Fibre Optics) sold the remaining holding of shares in Avexa Limited during the year resulting in an increase in the amount owing by Circadian to Fibre Optics at year end.
(iii) In accordance with a management services agreement between Circadian and Vegenics Limited, Circadian charged Vegenics $2,025,600 (2008: $900,000) for the provision of management and related support services by Circadian. See note 12(i) for further details.

	Consolidated	Consolidated	Parent
	2009	2008	2009	2008
	$	$	$	$
25. Key Management Personnel
Details of the key management personnel are included within the Remuneration Report section of the Directors’ Report.
(a) Compensation of Key Management Personnel
Short-term employee benefts	1,668,546	1,557,631	1,668,546	1,557,631
Post-employment benefts	150,169	135,351	150,169	135,351
Long-term benefts	7,104	14,746	7,104	14,746
Termination benefts	-	46,359	-	46,359
Share-based payments expense	212,673	140,654	212,673	140,654
Total compensation	2,038,492	1,894,741	2,038,492	1,894,741

2009 annual report 73

NOTES TO THE FINANCIAL STATEMENTS (continued)

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25. Key Management Personnel (continued)

(b) Option holdings of Key Management Personnel (Consolidated)

							Total at end of period	Total at end of period
		Balance at
		beginning				Balance at	Exercisable
		of period	Granted as	Options	Net Change	end of period	(i.e. vested)	Not exercisable*
		1 July	Remuneration	Exercised	Other	30 June	“out of the money”	(i.e. not vested)
Executive Directors
R. Klupacs	2009 1,000,000		-	-	-	1,000,000	-	1,000,000
L. Serry1	2008 500,000 2009 -		500,000 -	- -	- -	1,000,000 -	- -	1,000,000 -
G. Kaufman2	2008 1,250,000 2009 -		- -	- -	(1,250,000) -	- -	- -	- -
2008 Other Executives		750,000	-	-	(750,000)	-	-	-
N. Korchev	2009 175,000		200,000	-	(25,000)	350,000	-	350,000
A. Szabo3	2008 175,000 2009 -		- 250,000	- -	- -	175,000 250,000	25,000 -	150,000 250,000
M. Baldwin4	2008 - 2009 -		- 200,000	- -	- -	- 200,000	- -	- 200,000
R. Chadwick5	2008 - 2009 - 2008 -		- 160,000 -	- - -	- - -	- 160,000 -	- - -	- 160,000 -
Total	2009 1,175,000		810,000	-	(25,000)	1,960,000	-	1,960,000
	2008	2,675,000	500,000	-	(2,000,000)	1,175,000	25,000	1,150,000

These options have not legally vested. Vested options, which must achieve share price hurdles in order to vest, will only become exercisable in 2011 (for options issued in 2008 and 2007) and 2012 (for options issued in 2009).
1 L. Serry retired on 29 February 2008 after 24 years of service. The options issued to L. Serry, although they have not legally vested, are deemed to be vested pursuant to AASB 2 Share-Based Payments .
2 G. Kaufman resigned on 25 October 2007 before reaching minimum tenure requirements to retain a pro-rata entitlement of options issued to him and before these options had vested.
3 A. Szabo was employed by the Group on 1 July 2008.
4 M. Baldwin was employed by the Group on 14 January 2008. Dr Baldwin did not meet the definition of a key management person under AASB 124 for the 2008 financial year but is a key management person for 2009.
5 R. Chadwick was employed by the Group on 1 February 2008. Dr Chadwick did not meet the definition of a key management person under AASB 124 for the 2008 financial year but is a key management person for 2009.

circadian technologies limited

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(c) Shareholdings of Key Management Personnel (Consolidated)

Ordinary shares held in Circadian Technologies Limited (number)

	Balance at beginning of period 1 July Granted as Remuneration On Exercise of Options Net Change Other Balance at end of period 30 June
Directors R. Klupacs D. Fisher D. Clarke T. McMeckan C. Montagner1 J. Skipper2 J. Stocker3 J. MacKenzie4 L. Serry5 G. Kaufman6 Executives N. Korchev A. Szabo M. Baldwin R. Chadwick Total
	2009 58,215 - - 27,266 85,481
	2008 3,500 - - 54,715 58,215
	2009 67,500 - - 50,000 117,500
	2008 17,500 - - 50,000 67,500
	2009 80,000 - - - 80,000
	2008 60,000 - - 20,000 80,000
	2009 20,000 - - - 20,000
	2008 - - - 20,000 20,000
	2009 - - - - -
	2008 - - - - -
	2009 - - - - -
	2008 - - - - -
	2009 282,334 - - (282,334) -
	2008 282,334 - - - 282,334
	2009 - - - - -
	2008 - - - - -
	2009 - - - - -
	2008 2,100,000 - - (2,100,000) -
	2009 - - - - -
	2008 28,500 - - (28,500) -
	2009 - - - 5,750 5,750
	2008 - - - - -
	2009 - - - - -
	2008 - - - - -
	2009 - - - - -
	2008 - - - - -
	2009 - - - - -
	2008 - - - - -
	2009 508,049 - - (199,318) 308,731
	2008 2,491,834 - - (1,983,785) 508,049

2009 annual report 75

NOTES TO THE FINANCIAL STATEMENTS (continued)

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25. Key Management Personnel (continued)

(c) Shareholdings of Key Management Personnel (Consolidated) (continued)
1 C. Montagner was appointed to the Board on 1 July 2008.
2 J. Skipper was appointed to the Board on 14 August 2008.
3 J. Stocker resigned as a non-executive director of Circadian on 14 November 2008. On date of resignation, he held 282,334 shares in Circadian.
4 J. MacKenzie resigned as a non-executive director of Circadian on 31 July 2008.
5 L. Serry retired as the managing director of Circadian on 29 February 2008. On date of retirement, he held 2,100,000 shares in Circadian.
6 G. Kaufman resigned as an executive director of Circadian on 25 October 2007. On date of resignation, he held 28,500 shares in Circadian.

Any equity transactions by key management personnel other than those arising from the exercise of remuneration options have been entered into under terms and conditions no more or no less favourable than those the Group would have adopted if dealing at arm’s length, that is they are on-market transactions.

(d) Loans to Key Management Personnel (Consolidated)

There were no loans to key management personnel during the current financial year and the previous financial year.

(e) Other transactions and balances with Key Management Personnel and their related parties

Director Related Entity Transactions:

Purchases

(i) During the year, Circadian paid $40,500 in donations to the Ludwig Institute for Cancer Research Ltd (LICR). Dr Jonathan Skipper, a non-executive director of Circadian, is an executive officer of LICR.
(ii) Laboratory costs totalling $27,300 were incurred during the year by Vegenics Limited for facilities provided by LICR.
(iii) Legal fees, including miscellaneous expenses, totalling $109,664 (2008: $35,990) were incurred during the year by the Group for services provided by the legal firm of Minter Ellison of which Don Clarke, a director of the Company, is a partner. These legal fees were charged at commercial rates.

Amounts recognised at the reporting date in relation to director related entity transactions:

Assets and Liabilities: Current assets Non-current assets Total assets Current liabilities Payables Non-current liabilities Total liabilities Revenues and expenses: Revenue Total revenue Administrative expenses Research & development expenses Total expenses	2009 $ 2008 $
	- - - -
	- -
	12,962 6,660 - -
	12,962 6,660
	- 15,000
	- 15,000
	150,164 35,990 27,300 -
	177,464 35,990

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26. Share-Based Payment Plans

(a) Recognised share-based payment expenses

The expense recognised for employee services received during the year is shown in the table below:

(a) Recognised share-based payment expenses The expense recognised for employee services received during	the year is shown in the table below:
Expense arising from equity-settled share-based payment transactions (note 8(d))	Consolidated Parent
	2009 $ 2008 $ 2009 $ 2008 $
	244,031 113,318 244,031 113,318

The share-based payment plan is described below. There have been no cancellations or modifications to the plan during 2009 and 2008.

(b) Types of share-based payment plans

Options

Share options are granted to executive directors and certain employees.

Options issued in 2004

With respect to the options issued in the 2004 financial year, the exercise prices were set at substantially higher prices than the Company’s share price at grant date.

The contractual life of each option granted was five years and there were no cash settlement alternatives. The options were not exercised and expired in September 2008.

Options issued in financial years 2007 to 2009

Tranche 1 – a market price for a Circadian share (Share Price) achieves not less than 125% of the Exercise Price;
Tranche 2 – the Share Price achieves not less than 150% of the Exercise Price; and
Tranche 3 – the Share Price achieves not less than 175% of the Exercise Price.

The Share Price is to be calculated as the volume weighted average share price of Circadian shares traded on the ASX over a consecutive 15 day trading period.

The options issued in the 2008 financial year were to Robert Klupacs, pursuant to an Executive Contract dated 20 December 2007.

Vested options may only be exercised at any time in the last 12 months of the relevant option period.

Options in relation to which performance conditions have not been satisfied (i.e. that do not vest) will lapse and will not be able to be exercised, except in circumstances as described below.

2009 annual report

NOTES TO THE FINANCIAL STATEMENTS (continued)

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26. Share-Based Payment Plans (continued)

(c) Summary of options granted

The following table illustrates the number of and movement in share options during the current year:

Date of Issue	26/6/2009 (ii)	15/12/2008 (ii)	15/9/2008 (ii)	18/2/2008 (ii)	5/3/2007 (ii)	8/2/2007 (ii)	25/9/2003
On issue at the
beginning of the year	-	-	-	500,000	120,000	1,400,000	550,000
Granted during the year	100,000	100,000	985,000	-	-	-	-
Exercised during the year	-	-	-	-	-	-	-
Expired during the year	-	-	-	-	-	-	(550,000)
Outstanding at the end
of the year	100,000	100,000	985,000	500,000	120,000	1,400,000	-
Exercisable at the end
of the year	-	-	-	-	-	-	-
Number of recipients	2	1	8	1	4	4	3
Exercise price	$1.00	$1.00	$1.00	$1.30	$1.50	$1.50	(i)
Exercise period from	26/6/2012	15/12/2011	15/9/2011	8/2/2011	9/3/2011	8/2/2011	25/9/2003
To (Expiration day)	26/6/2013	15/12/2012	15/9/2012	8/2/2012	9/3/2012	8/2/2012	25/9/2008

(i) The exercise price on options issued was as follows:

1/3 options exercisable at $2.62 per share

1/3 options exercisable at $2.87 per share
1/3 options exercisable at $3.12 per share
(ii) Refer to note (b) above for a summary of the options granted.

(d) Option pricing models for options granted

The following assumptions were used to derive a value for the options granted using the model as specified below as at the grant date, taking into account the terms and conditions upon which the options were granted.

Issue date of options	26/6/2009	15/12/2008	15/9/2008	18/2/2008	5/3/2007	8/2/2007	25/9/2003
Dividend yield	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%	1.04%
Expected annual volatility	45%	45%	45%	37.5%	37.5%	37.5%	45.00%
Risk-free interest rate (p.a.)	5.08%	3.73%	5.43%	6.54%	5.79%	5.99%	5.41%
Expected life of option (years)	3.5	3.5	3.5	3.5	4.5	4.5	5
Fair value per option	20.96¢	11.28¢	27.99¢	24.64¢	41.01¢	67.45¢	68.00¢
	- 21.97¢	- 12.06¢	- 29.14¢	- 27.62¢	- 43.34¢	- 68.56¢	- 78.00¢
Exercise price per option	$1.00	$1.00	$1.00	$1.30	$1.50	$1.50	*$3.00
							- $3.50
Share price at grant date	$0.745	$0.58	$0.85	$1.025	$1.27	$1.61	$2.25
Model used	Monte Carlo	Monte Carlo	Monte Carlo	Hull Model^	Monte Carlo	Monte Carlo	Binomial

The exercise prices per option on date of grant were $3.00 to $3.50, however the exercise price had reduced by 38 cents per option as a result of a return of capital to shareholders (38 cents per share) in October 2004. The adjusted exercise price per option is detailed in (c)(i) above.

^ The Hull Model is a barrier option model which is derived using a closed-form formula not dissimilar to the Black-Scholes formula.

circadian technologies limited

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With respect to the expected life of the options, for the options granted in 2003, this was determined as being the number of years from the grant date to expiration. For the options issued from 2007 to 2009, this life was based on the assumed exercise behaviour which calculates the effect of an early exercise of the option into the expected life. These estimates may not be indicative of the exercise pattern which may occur.

The expected volatility is calculated using historic share returns. These periods differed in each financial year. For those options granted in 2009 this was a period of two years, 2008 was for a period of three years and 2003 was for one year. This basis assumes that the historical volatility is indicative of future market trends which may not be the case.

Options in Circadian Technologies Limited are not listed and as such do not have a market value.

	Consolidated				Parent
	2009	2008	2009		2008
	$	$	$		$
27. Commitments
(i) Operating lease commitments – Group as lessee
The Group has entered into a commercial lease for the offce premises. An extension to the lease was signed in May				2008 providing for a
further two years and allows for the tenancy to be terminated with six months notice. The following commitment assumes that the tenancy
will be occupied for the full two year extension. If notice was to have been given at 30 June 2009, the commitment				for six months rent
would have amounted to $50,648.
Within one year	87,698	92,694	87,698		92,694
After one year but not more than fve years	-	96,301		-	96,301
	87,698	188,995	87,698		188,995

(ii) Research projects and license commitments

The Group has entered into research and development and intellectual property license agreements with various parties (refer to note 23 for details of some of the projects). Expenditure commitments relating to these are payable as follows:

Within one year After one year but not more than fve years After more than fve years	2,991,354 3,936,671 - - 1,324,838 905,598 - - 250,910 419,903 - -
	4,567,102 5,262,172 - -

28. Contingencies

(i) Vegenics Limited, a subsidiary of Circadian, is a party to various research agreements with respect to which a commitment to pay is contingent on the achievement of research milestones. Assuming all milestones are achieved within the timeframes stipulated in the contracts, those which could become payable in less than one year total $Nil (2008: $228,732) and those which could become payable in more than one year total $100,000 (2008: $50,000).

Further, under license/collaboration agreements with three third parties, payments are to be made only if certain research and clinical development milestones are achieved and royalties may become payable on any eventual sales of products developed under these agreements.

(ii) Remuneration contingent liability – refer to “Employment contracts” in the Remuneration Report of the Directors’ Report with respect to payments in lieu of notice where either the Managing Director resigns or the Company terminates his employment.

2009 annual report 79

NOTES TO THE FINANCIAL STATEMENTS (continued)

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29. Events after the Balance Sheet Date

As at 30 June 2009, the Group through its subsidiary Fibre Optics (Aust) Pty Ltd owns 60% of the issued share capital of CancerProbe Pty Ltd. On 5 August 2009, Fibre Optics entered into a legally binding agreement with CancerProbe Pty Ltd to execute a share buy-back for the shares held by Fibre Optics. The expected proceeds from the share buy-back are $54,000. The original cost of the investment was $700,000, however the carrying value of this investment in Fibre Optics’ accounts at 30 June 2009 is $54,000 (note: the net assets of CancerProbe as at this date is $60,554). The completion of this agreement is subject to approval of the change of control from the Department of Industry, Tourism and Resources (DITR) in accordance with a grant agreement between CancerProbe and the DITR.

	Consolidated
	2009	2008	2009	2008
	$	$	$	$
30. Auditors’ Remuneration
The auditor of Circadian Technologies Limited is Ernst & Young.
Amounts received or due and receivable by Ernst & Young
(Australia) for:
• an audit or review of the fnancial report of the entity and	96,805	91,537	64,412	64,040
any other entity in the consolidated group
• other services in relation to the entity and any other entity
in the consolidated group
– tax compliance	28,310	20,000	19,230	13,500
– other tax services	23,810	15,080	18,130	8,230
– assurance related	13,956	5,365	13,956	4,000
	162,881	131,982	115,728	89,770

circadian technologies limited

DIRECTORS' DECLARATION

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In accordance with a resolution of the directors of Circadian Technologies Limited, we state that:

In the opinion of the directors:
(a) the financial report, and the remuneration report included in the directors’ report of the Company and of the Group are in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the Company’s and Group’s financial position as at 30 June 2009 and of their performance for the year ended on that date; and
(ii) complying with Accounting Standards and Corporations Regulations 2001; and
(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.
This declaration has been made after receiving the declarations required to be made to the directors in accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2009.

For and on behalf of the Board:

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Robert Klupacs Director

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Dominique Fisher Director

Melbourne 20 August 2009

2009 annual report 81

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Independent auditor’s report to the members of Circadian Technologies Limited

Report on the Financial Report

We have audited the accompanying financial report of Circadian Technologies Limited, which comprises the balance sheet as at 30 June 2009, and the income statement, statement of changes in equity and cash flow statement for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year.

Directors’ Responsibility for the Financial Report

Auditor’s Responsibility

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Independence

Liability limited by a scheme approved under Professional Standards Legislation

circadian technologies limited

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Auditor’s Opinion

In our opinion:

the financial report of Circadian Technologies Limited is in accordance with the Corporations Act 2001 , including:
i giving a true and fair view of the financial position of Circadian Technologies Limited and the consolidated entity at 30 June 2009 and of their performance for the year ended on that date; and
ii complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001 .
the financial report also complies with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Report on the Remuneration Report

We have audited the Remuneration Report included in pages 9 to 1 7 of the directors’ report for the year 18 to 24 of the directors’ report for the year ended 30 June 2009. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.

Auditor’s Opinion

In our opinion the Remuneration Report of Circadian Technologies Limited for the year ended 30 June 2009, complies with section 300A of the Corporations Act 2001.

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Ernst & Young Joanne Lonergan Partner Melbourne 20 August 2009

2009 annual report

ASX ADDITIONAL INFORMATION

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1. Distribution of equity securities

The number of shareholders, by size of holding, of quoted fully paid ordinary shares as at 14 September 2009 is as follows:

	Fully Paid Ordinary Shares
Category	No. of Holders No. of Shares
1 - 1,000 1,218 808,171 1,001 - 5,000 1,659 4,544,953 5,001 - 10,000 437 3,482,599 10,001 - 100,000 336 8,951,955 100,001 - and over 35 27,454,250 3,685 45,241,928 The number of shareholders holding less than a marketable parcel of shares are: 607 224,077	1,218 808,171 1,659 4,544,953 437 3,482,599 336 8,951,955 35 27,454,250
	3,685 45,241,928

2. Twenty largest shareholders

The names of the twenty largest holders of quoted fully paid ordinary shares and their respective holdings as at 14 September 2009 are:

		No. of Shares % Interest	No. of Shares % Interest
1.	HSBC Custody Nominees (Australia)
	Limited	7,740,772	17.11
2.	Ludwig Institute for Cancer
	Research Ltd *	2,589,635	5.72
3.	Licentia Limited *	2,527,795	5.59
4.	Citicorp Nominees Pty Limited	1,833,094	4.05
5.	Cogent Nominees Pty Limited	1,785,155	3.95
6.	Capital Macquarie Pty Ltd	1,377,360	3.04
7.	HSBC Custody Nominees (Australia)
	Limited – GSCO ECA	1,224,900	2.71
8.	Jagen Pty Ltd	819,322	1.81
9.	JFF Steven Pty Ltd	714,867	1.58
10.	Chemical Trustee Limited	650,000	1.44
11.	Primdonn Nominees Pty Ltd	650,000	1.44
12.	Traders Macquarie Pty Ltd	647,972	1.43
13.	Audivac Pty Ltd	543,400	1.20
14.	Philadelphia Investments Pty Ltd	400,000	0.88
15.	Mr Eric Lucas	354,036	0.78
16.	JP Morgan Nominees Australia Limited	332,987	0.74
17.	Bond Street Custodians Limited
		282,334	0.62
18.	Piat Corp Pty Ltd	250,000	0.55
19.	Mr David John Massey
		242,730	0.54
20.	Denvorcorp Holdings Pty Ltd	233,621	0.52
		25,199,980	55.70

3. Restricted securities

The following restricted securities are in voluntary escrow in accordance with the Share Purchase Deed between the two parties and Circadian Technologies Limited dated 11 August 2008.

		Date Escrow
	No. of Shares	Period Ends
Ludwig Institute for Cancer Research Ltd	1,294,818	14/08/2010
Licentia Limited	1,263,898	14/08/2010

4. Substantial shareholders

The following information is current at 14 September 2009 based on information extracted from substantial shareholding notices given to the Company by shareholders who hold relevant interests in more than 5 per cent of the Company’s voting shares:

		No. of Shares
	Packer & Co Limited	7,724,421
	Select Asset Management Limited	3,277,612
	Ludwig Institute for Cancer Research Ltd	2,589,635
	Licentia Limited	2,527,795

5. Voting rights

Clauses 44 to 53 of the Company’s Constitution stipulate the voting rights of members. In summary, but without prejudice to the provisions of the Constitution, every member present in person or by representative, proxy or attorney shall have one vote on a show of hands and on a poll have one vote for each ordinary share held by the member.

The Company’s shares are quoted on the Australian Stock Exchange Limited (ASX code: CIR).

A portion of these holdings are restricted – see point 3.

circadian technologies limited

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Corporate Information

Company Circadian Technologies Limited ABN 32 006 340 567 Directors Dominique Fisher, BA (Hons), MAICD (Chairman) Robert Klupacs, BSc (Hons), Grad Dip IP Law, MAIPA (Managing Director and CEO) Don Clarke, LLB (Hons) Tina McMeckan, BLibArts&Sc, MBA, FAICD Carlo Montagner, BSc, MSc, Grad Dip Child Psychology Jonathan Skipper, PhD

Company Secretary Natalie Korchev, BCom, ACA Registered Office Level 1, 10 Wallace Avenue, Toorak, Victoria 3142 Principal Administrative Office Level 1, 10 Wallace Avenue, Toorak, Victoria 3142 Telephone: +61 3 9826 0399 Facsimile: +61 3 9824 0083 Bankers Commonwealth Bank of Australia, Melbourne, Victoria Auditors Ernst & Young, 8 Exhibition Street, Melbourne, Victoria 3000 Solicitors Minter Ellison, Rialto Towers, Level 23, 525 Collins Street, Melbourne, Victoria 3000 Share Register Computershare Investor Services Pty Ltd Yarra Falls, 452 Johnston Street, Abbotsford, Victoria 3067 Telephone: +61 3 9415 4000 or 1300 850 505 (within Australia)

Stock Exchange Listing

Circadian Technologies Limited’s shares are quoted on the Australian Stock Exchange Ltd ASX code: CIR

Website www.circadian.com.au

2009 annual report

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Annual Report 2009

Circadian Technologies Limited

ABN 32 006 340 567

Level 1, 10 Wallace Avenue, Toorak, Victoria 3142, Australia t. +61 3 9826 0399 f. +61 3 9824 0083 www.circadian.com.au

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AI assistant

Opthea Ltd — AGM Information 2009

32698_rns_2009-10-13_46e8a24f-bdde-4fbc-8b40-1dcd9436defa.pdf

Notice of Annual General Meeting and Explanatory Memorandum

Circadian Technologies Limited ACN 006 340 567

Notice of Annual General Meetin g

Ordinary Business

1. Financial statements and reports

2. Remuneration report (Resolution 1)

3. Election of Dr Errol Malta as a director (Resolution 2)

4. Re-election of Ms Dominique Fisher as a director (Resolution 3)

5. Other business

14 October 2009

Prox Notes y

Voting entitlements

Ex lanator Memorandum p y

1. Purpose of information

2. Financial statements and reports

3. Remuneration report (Resolution 1)

4. Election of a director (Resolution 2)

4.1

Introduction

4.2 Biography of Dr Errol Malta

5. Re-election of a director (Resolution 3)

5.1

Introduction

5.2 Biography of Ms Dominique Fisher

Lodge your vote:

By Mail:

For all enquiries call:

Proxy Form

For your vote to be effective it must be received by 10:00am Tuesday 17 November 2009

How to Vote on Items of Business

Signing Instructions

Appointment of Proxy

Attending the Meeting

Turn over to complete the form

www.investorcentre.com

Review your securityholding

Proxy Form

Please mark

Appoint a Proxy to Vote on Your Behalf

XX

I/We being a member/s of Circadian Technologies Limited hereby appoint

the Chairman of the meeting

OR

Items of Business

Signature of Securityholder(s) This section must be completed.

2009 annual report

Contentscontents

Review by Robert Klupacs Managing Director & CEO

Dear Shareholders

Building an outstanding management and advisory team

The next 12-24 months

Snapshot of our Product Pipeline

Circadian’s deep product pipeline comprises:

Our Strategy

A focus on developing antibody and protein therapeutics.

Our objectives are to:

Our Technology

Inhibiting angiogenesis and lymphangiogenesis – a powerful new treatment approach for cancer

VEGF Proteins

Angiogenesis and lymphangiogenesis

About VEGF-C, VEGF-D and VEGFR-3

VEGFR-3 as an anti-cancer target

Anti-cancer compounds

Intellectual property

Other disease applications

Inherent risks of investment in biotechnology companies

Robert Klupacs, BSc(Hons), Grad Dip IP Law, MAIPA

Managing Director & CEO

Natalie Korchev, BCom, ACA

CFO, Head of Operations and Company Secretary

Alexander Szabo, PhD, MBA

Head of Business Development

Megan Baldwin, PhD

Head of Preclinical R&D

Richard Chadwick, PhD

Head of Intellectual Property

Susan Foran, M Pharm

Opthea Ltd AGM Information 2009